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Hotel and motel owners understand that there is a cyclical nature to their business. The economy and the health of the tourism industry often play a huge role in whether a year is wildly successful or extremely challenging.
The nature of the hotel motel business can make finding the right loan difficult. Bank lenders are cautious when it comes to loans or credit extended for hotels. They consider them higher risk because their success is based on many outside factors, even the weather. But small business funding is often needed for repairs, improvements and upgrades, as well as covering daily operation costs during a slump in revenue. It is vital for hotel owners to obtain the right financing that fits the business’ needs and helps secure their future rather than risk it.
Ways to Use a Hotel Loan and Financing
Running a hotel involves a number of expenses, both expected and unforeseen. A hotel loan can be a strategic tool to address these costs and drive growth.
One of the primary ways you might use a hotel loan or financing is for property renovations and upgrades. Keeping your hotel modern and in line with current trends can improve guest satisfaction and boost occupancy rates.
Additionally, if you’re looking to expand your services, such as adding a spa, gym, or restaurant, a hotel loan can provide the necessary capital. Seasonal fluctuations are common in the hospitality industry, and a loan can help manage cash flow during off-peak times, ensuring smooth operations year-round.
Moreover, if you’re eyeing an opportunity to purchase additional property or even a new hotel, the right financing can make this aspiration a reality.
What Is a Business Loan for Hotels?
Catering to hotel motel guests is essential to success in this business. In fact, information at entrepreneur.com, says the most basic reason to make improvements to your business are your guests. Basically, success in the future depends on the level of service and comfort you supply your guests today. Improvements often focus on making your establishment better fit your current and potential customers’ desires.
Top reasons that require cash:
- Your hotel or motel needs renovations: If your rooms are dated and dingy, a good way boost guest satisfaction is with beautiful, modern updates. Stylish design can impress your guests and make them feel welcomed.
- You need to expand what you offer: Maybe your public bathrooms are old and dingy, or the lobby seems like it is from the 1980s. The first impression you make with your guests often is what they remember most.
- Hiring more employees: It takes a lot to keep up with all the needs of your guests and to properly maintain your property. Customer convenience and the quality and speed of service matter as well. Your customer’s experience, and how they speak about it, is a great method to generate new customers.
- Meeting the costs of daily operations: Small cyclical businesses face big obstacles when there is a slump in revenue, according to about.com. Sometimes hotel owners need loans to meet the demands of their daily operations and stay afloat. Financially challenging periods can result in the need for temporary funding to cover operating costs, suppliers and payroll until you get back on track.
- Purchasing a new or existing hotel: Whether you are starting out, changing locations or adding another property to your hotel family, purchasing real estate is another reason a hotel loan is sought.
Types of Hotel Financing and Loans
Traditional term loans are a common choice, providing a lump sum of money upfront, which is then repaid over a set period. This type of loan is ideal for significant investments, such as property purchases or extensive renovations.
Lines of credit offer flexibility, allowing you to draw funds as needed, up to a specified limit. This can be particularly useful for managing cash flow or addressing unexpected expenses.
Equipment financing is tailored for purchasing or upgrading equipment, from kitchen appliances to IT infrastructure.
Merchant cash advances, where you receive an upfront sum repaid through a percentage of daily credit card sales, can also be an option, especially if your hotel processes a significant volume of card transactions.
Banks
According to Forbes.com, banks do not favor small businesses or anything they consider risky. Most privately owned hotels and motels don’t meet the tough lending criteria that has been in place since the economic downturn of 2008. If you have a low credit score, you may be forced to seek funding outside of the bank.
Other downsides to bank funding include:
- Banks have a rigorous loan application and typically require you to offer up substantial collateral, which you will lose should you be unable to make your payments.
- Often a balloon payment is part of your lending terms, and if you don’t have the funds to pay it, you must refinance and pay additional closing costs.
- The lending process takes at least 30 days to get money in hand.
- Excellent credit and a lengthy business history are often part of the criteria.
- A detailed business plan and all your financial documentation, both personally and for the business are part of the approval process.
Alternative Lenders for Hotel Business
Alternative types of funding can provide several lending options for hotel owners, which meet the needs of today’s hospitality entrepreneur. The application process focuses mostly on the overall health of your business and what you have created. So, your credit score is not the primary focus when it comes to a gaining approval for your funding.
- Alternative lenders also can offer flexibility in payment schedules based upon your sales volume and can tailor the loans to meet the needs unique to your type of business.
- Applications are typically fast, easy and provide you the money you need quickly.
Lines of Credit for Hotels
A Business Line of Credit is typically unsecured by any collateral and does not offer long repayment time-frames. Essentially, the lender allows you the opportunity to borrow money up to a specified amount, similar to the way a credit card works, but with better interest rates. Because you only use the funding you need, your interest is based upon that amount, not the full line of credit available. This is a good options for short-term funding needs.
Hotel Financing Requirements
Before securing financing for your hotel, it’s essential to be prepared with the necessary documentation and meet specific criteria.
Lenders typically look at your hotel’s financial history, including revenue patterns, profitability, and existing debts. A stable financial track record can significantly improve your chances of loan approval. The duration of your hotel’s operations can also play a role, with long-standing establishments often viewed as less risky.
Lastly, while credit scores are a common way to measure financial health, they are just one piece of the puzzle. However, maintaining a good credit score can still be to your advantage, signaling to lenders your financial responsibility.
The eligibility requirements for Credibly’s small business loans and financing for hotels depend on which option you select and are based on the business owner’s specific credit history and creditworthiness. Generally, you need to have:
- Six months or more of time in business
- A credit score of over 500*, and
- An average monthly revenue of $15,000+ ($180,000+ in annual revenue).
Specific requirements may vary.
Hotel Financing Application Process
Your first step usually involves gathering all the necessary documentation. This typically includes your hotel’s financial statements, proof of ownership, and details about its operational history. Lenders will want to see a consistent revenue stream, indicating that your hotel is profitable and can manage the loan’s repayment.
Once your documents are organized and ready, the next step is to research potential lenders. Whether you’re considering traditional banks, credit unions, or online lenders, it’s crucial to understand their specific requirements and terms. Some lenders might have specialized hotel financing programs, while others might offer more generic business loans.
After selecting a lender, you can initiate the application process. Many modern lenders offer online platforms, streamlining the application process. Here, you can upload your documents digitally, fill out the necessary forms, and submit your application. It’s essential to ensure all information provided is accurate and up-to-date to avoid any delays or complications.
Following your submission, there’s typically a review period. During this time, the lender assesses your application, verifies the provided information, and evaluates the risk associated with the loan. They might reach out for additional details or clarifications. Being responsive and cooperative during this phase can expedite the process.
Once the review is complete, you’ll receive a decision. If approved, the lender will present the loan terms, including interest rates, repayment schedule, and any associated fees. It’s crucial to review these terms carefully, ensuring they align with your hotel’s financial capabilities and growth plans.
Getting Funding from Credibly
When you apply for financing from Credibly for your hotel business, you’ll enjoy a simpler process. You only need to complete a financing application and provide your business’s bank statements from the last three months.
If you’re seeking a loan over $100,000, Credibly may ask for your business tax returns. This is to ensure a responsible lending decision on larger loan amounts. But remember, for most financing needs, the paperwork is minimal.
Credibly’s approach focuses on your hotel’s current financial activities, not extensive historical data. This means quicker access to the funds you need with less hassle.
FAQs about Hotel Financing
What is hotel financing?
Whether you’re looking to renovate your property, expand your services, manage seasonal cash flow fluctuations, or even purchase a new hotel, small business financing provides the necessary capital.
With alternative lenders like Credibly, you can secure financing that not only looks at your financial statements but also understands your business’s broader picture and potential.
How do I choose the best hotel financing lender?
Start by assessing the lender’s reputation in the market. Look for reviews and testimonials from other hoteliers who’ve received their services.
Additionally, consider the flexibility and terms they offer. Funding providers, like Credibly, who understand the broader picture of your hotel’s potential, can often provide more tailored solutions.
It’s also essential to compare rates, fees, and other associated costs. Lastly, consider the funding provider customer service and support, ensuring they’ll be there to assist you throughout the loan’s duration.
What do I need to consider when getting a hotel loan?
Assess your hotel’s financial health, ensuring you can manage the loan’s repayment. Consider the loan’s terms, including rates, repayment schedule, and any associated fees.
With lenders like Credibly, who focus on reducing barriers to entry and understanding your business’s broader picture, you can secure a loan that aligns with your hotel’s goals and operational needs.
Can I qualify for a hotel loan with bad credit?
While credit scores are important, they’re just one piece of the puzzle.
Many modern lenders, including Credibly, look beyond just credit scores, focusing on the overall potential and health of your hotel.
So, even if you have a less-than-perfect credit score, it doesn’t necessarily rule out your chances of securing a hotel loan.
Lenders are increasingly considering factors like your hotel’s revenue patterns, operational history, and future growth plans.
