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Hotel Business Loans – The Secret to a Successful Hotel Business
Managing a hotel may seem fancy on the outside, but the truth is, entering the $1 trillion hotel and hospitality industry is a constant juggling act. Whether it's a franchise or a small bed and breakfast, every business needs dedicated staff, a meticulous manager, a solid marketing strategy, and, most importantly, enough capital to cover all the overhead and operating expenses and stabilize cash flow.
SMB Compass offers hotel loans & financing that could help cover the costs of renovating your existing hotel, expansion, or bolstering customer acquisition efforts, just to name a few possibilities. Our trusted advisors will discuss how to improve the value of your existing hotel and the importance of securing a suitable loan for hotel business to achieve your goals.
SMB Compass is aware that running a hotel is far from glamorous. We make sure that you'll have the working capital you need 24/7.
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5 Innovative Ways to Utilize Hotel Business Financing
The goal of every business – especially the hospitality industry – is to enhance the overall customer experience and gain new clientele along the way. However, your business's strategies to achieve this goal must be cost-effective, limiting the amount of debt and expenses incurred.
It's not easy to run a hotel, but with SMB Compass, you won't have to worry about lacking working capital.
Here are four ways you can improve your business using hospitality lending:
Create a Mobile-Friendly Website
Did you know that more than 50% of lodge bookings are online? A business without a website loses tons of potential business opportunities.
But having a website isn’t enough. Mobile-friendly websites are in high demand, not just in the hospital industry but in every business industry. Travelers and tourists use their phones to access information and book hotels.
Customers prefer websites that display real-time pricing, room availability, and general hotel information. However, a fully functional, search-engine-optimized, and mobile-friendly website often comes with a high price. You can get business loans for hotels to cover the costs of creating websites or apps for your hotel.
Advertising and Marketing Campaigns
Advertising and marketing campaigns are important to customer acquisition, especially if you’re a new hotel in the early stages of business. If your hotel doesn’t have enough funds to invest in creating top-notch advertising and marketing campaigns, hotel loans can help you out.
Aside from your website, other marketing campaigns you might need to implement include social media marketing, content marketing, SEO, and online Ads. These usually require a significant budget. This is then where hotel lenders come in.
Upgrade Hotel Equipment
At some point, your business will need to replace or repair your hotel equipment, such as furniture, fixtures, door lock systems, point-of-sale systems, food service and laundry carts, washers and dryers, and beds. Purchasing hotel equipment all at once is not cheap. A hotel loan will help pay for the needed equipment without disrupting cash flow.
Business Renovation
Are you considering renovating your hotel to keep up with emerging trends? Adding more rooms to accommodate more customers? Or, considering opening a souvenir or gift shop inside your hotel?
Whatever the reason, expansion and renovation often require a substantial amount of cash. Hotel business loans for hotels will help you pay for your business expansion without draining your bank account.
Acquision of Existing Hotels
Existing hotel acquisitions are a big commitment, not to mention expensive. Aside from the price of the acquisition itself, you’ll also need to think about the renovations, paperwork, hiring, and other acquisition expenses.
With competitive hospitality financing, hotel business owners will have the capital necessary to cover the cost of their business growth and expansion.
Most Popular Loan Programs for Hotel Businesses
SMB Compass takes your hotel business needs seriously. We have financial experts ready to help answer any question to make sure you find a hotel financing product that fits your needs. The following are the best hotel loans programs for financing hotels:
SBA Loans
An SBA loan for hotel is one of the most popular options for small business owners. The Small Business Administration’s 7(a) and CDC/504 loans are excellent financial resources if you’re in the hotel industry.
SBA 7(a) loans are used to cover general business initiatives. In other words, you can use them to finance hotel expenses, including hotel renovations, equipment purchases, refinance initiatives, and other hotel projects you need to tackle for growth. They also offer one of the lowest hotel financing rates, and their repayment terms can stretch up to 25 years.
Hotel companies looking to specifically invest in equipment, improve existing hotel buildings, or acquire commercial real estate properties may consider applying for hotel construction loans like SBA CDC/504 Loans. Unlike the SBA 7(a) loan program, you can’t use the CDC/504 as working capital or cover non-asset related investments.
One important thing to note is that loans offered by the Small Business Administration (SBA) are hard to obtain. Aside from that, you’ll have to submit a long list of documents to an SBA-preferred lender, and approval typically takes around a few weeks to three months. But once approved, you could take advantage of high loan amounts and enjoy lower interest rates than conventional bank loans.
Term Loans
When it comes to hospitality business loans, one of the most popular options in the market is the term loan. Once approved, businesses get a lump sum of capital, which they can use on almost any business initiative – including working capital, hotel construction, payroll, debt refinancing, etc.
Term loans can have a repayment period of 10 years or more, and they also come with competitive rates than other alternative loan options.
Asset-Based Loans
If your hospitality business doesn’t have enough revenue or cash flow to qualify for other forms of business financing, you might want to look into asset-based loans. This type of business loan focuses on the value of your assets instead of your cash flow. Asset-based loans are ideal for hotels with high-value assets on their balance sheets.
Businesses can use their assets as collateral to secure financing. The following collateral can be used to secure an asset-based loan:
Accounts receivable
Inventory
Equipment
Intellectual property
Commercial real estate
Marketable securities
Bridge Loan
Do you need short-term funding for your business? Bridge loans intend to bridge the gap between acquiring a new property (i.e., hotel or any commercial real estate acquisitions) or other areas your hotel business may need until you have secured long-term commercial loans.
Commercial hotel bridge financing usually has short repayment terms, with some not exceeding more than a year. Nevertheless, it is one of the best temporary hotel financing options, especially if you need to fund a time-sensitive investment.
Equipment Financing
Buying new equipment for your hotel is expensive. Equipment financing is a loan used to purchase equipment for your hotel business, such as new beds, washers, dryers, vehicles, or any other equipment your hotel needs. Equipment leases and equipment loans are two different types of equipment financing.
Business Line of Credit
A business line of credit (LOC) is a type of revolving credit wherein hotel owners are given access to a credit line with a certain credit limit. Unlike other hotel loan options, the hotel owner is not obliged to use the full amount. Instead, they can take the capital they need and pay the same amount back with interest.
Business LOCs come in especially handy when businesses need access to capital, such as during emergencies or in cases where they face unforeseen expenses.
How to Qualify for Hotel Financing
Lenders may have different eligibility criteria for their hotel financing products. Others may be stringent with their requirements, but others may work with businesses with less than stellar credit scores.
In general, hotel businesses who wish to get approval for their chosen hotel financing from their preferred lender must meet the following requirements:
A minimum credit score of 620
Annual revenue of at least $100,000
Must be able to pledge collateral or a down payment
Again, it's worth noting that eligibility criteria vary by hotel lender. In other words, the minimum credit score, revenue, and business history may vary. The list above is merely a recommendation to improve the owners' chances of qualifying for hotel financing.
It's also worth mentioning that the SBA may have a separate list of eligibility requirements potential borrowers must meet. This includes, but is not limited to, the following:
Must meet the SBA's definition of a small business
Business location must be within the United States or its territories
Company must operate for-profit
Owner must have no prior criminal charges
The business must prove that it can't qualify for other potential loan options
The best way to know whether you qualify for SBA loans or other types of hotel loans, contact one of our representatives. We'll be happy to walk you through the entire process.
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Apply for Hotel Financing Today!
The most important thing is finding the best option to address your hotel's needs. Do some research, consult with experts, and compare interest rates to ensure you get the best deal possible. By securing financing for your hotel, you'll be able to make a more informed decision, pick the best financing solution for your business, and focus on what you do best - running a successful hotel.
Hotel Financing FAQs
There are different funding options available for hotel purchases. For example, one of the most affordable hotel loans is the loan offered by the SBA, specifically, the SBA CDC/504 loan program. It’s a program specifically intended for hard-asset purchases, like commercial real estate and equipment.
Another option would be term loans. Like a traditional loan, business owners receive a lump sum of cash upfront (Up to $5 Million), which they repay in increments over a specific period. Term loans offer flexibility in use. In other words, the proceeds can be used towards any business purpose - e.g., working capital, equipment, and real estate purchases.
The application process for hotel financing loans is the same as that of a typical business loan. Start by finding potential hotel lenders. Find out their eligibility criteria and the documents they will require upon application. Some may require security for the the loan for hotel business, such as collateral or a down payment, so be sure to ask about that.
Compare offers from different lenders. Do your research on each. Based on the information you collect, you can then make a decision on which one to choose.
It’s also important to go through and understand the hotel loan underwriting guidelines before signing. This way, you’ll avoid mishaps in the future.
Hotel financing interest rates vary depending on the current market conditions and the lender you work with. Several factors can also affect interest rates. This includes the borrower’s credit score, business revenue, debt-to-income ratio, and others.
Essentially, the better your credentials are, the more likely banks and other lenders will offer hotel financing with favorable terms.