4 Most Popular Loan Programs to Finance Your Hotel
In this article, we are going to discuss three different lending options to finance hotels. First, we will cover Small Business Administration loans or SBA loans, a government-guaranteed program for small businesses. In the second we’ll review a business line of credit, which is a flexible lending tool with no purchase restrictions. Finally, we will detail how equipment financing can help you fund your hotel.
SBA Loans for Hotel Financing
SBA loans are a long-term loan product that is offered through banks and partly insured by the government. For real-estate SBA loans, the standard term is 25 years. This type of loan is essentially a government bond for banks – as lenders are guaranteed to receive up to 80% of the amount borrowed by a lender by the government, in the event a borrower cannot repay.
SBA loans are relatively restrictive compared to other traditional lending options. The credit check is extremely thorough, with borrowers needing to possess a strong credit history, as well as putting up collateral in order to qualify. However, real estate and other assets from the hotel can be used as collateral. Talk to your financial professionals about the possibility of an SBA loan for your hotel, as many owners have successfully utilized this option.
SBA loans are beneficial for hotel owners because of the large amounts that can be borrowed if you qualify. They are typically used for large expenses, like refinancing debt or purchasing additional real estate for the hotel.
Line of Credit for Hotel Lending
Another option for hotel financing is a business line of credit. Business lines of credit work similarly to credit cards. There are no restrictions on purchases, the application process is relatively easy, and the qualifications less restrictive than traditional loans, however, a strong credit is still usually required.
Lines of credit are revolving, which means that as soon as you pay money toward your amount owed, the amount you have available goes back up. The money is there for you when you need it and you don’t pay interest unless you use it.
Business lines of credit are great financing products for hotel lending because of the flexibility in purchasing power. From marketing expenses, compensating employees, updating furniture, to common cash flow needs, you can use your line of credit to pay for almost any type of business expense.
Equipment Financing for Hotel Lending
A third option for financing your hotel is equipment financing. Equipment financing refers to either an equipment loan or an equipment lease. These lending products can be used to purchase new or used equipment for your hotel.
Equipment financing can be used to fund any kind of equipment or furniture that the hotel needs – think about TVs or other electronics, amenities for the hotel, or upgrades to the kitchens.
With equipment leasing, you essentially rent the equipment from a lender, making payments over the terms of the lease. At the conclusion of the lease term, you have three options: extend the lease, end the lease, or buy out the equipment from the lender.
With equipment loans, you borrow a lump sum of money from a lender in order to purchase the equipment you need outright. The hotel repays the loan with monthly payments to the lender.
Business Term Loans for Hotels
A business term loan is a classic financing option. It’s what most people think of when they think about loans. With term loans, lenders give you a lump sum which you can repay in fixed monthly payments over a specified period. You can use the funds for almost anything – payroll, inventory, and other day-to-day expenses. This financing option is best for established companies with sound financial standing.
There are different types of term loans with varying interest rates, length of the term, and maximum loan amounts. The terms you receive will depend on your business revenues and credit rating.
More Hotel Lending Options for Business Owners
A smart hotel owner knows how to utilize multiple payment options to maintain working capital and keep operations in line. By considering and implementing a financing plan that takes advantage of several funding sources, hotel owners can be prepared for emergencies and prevent crippling crises.
SBA loans, business lines of credit, and equipment financing are just three of many options available for hotel owners who need financial relief. Speak with your financial professionals to find out which options work best for you with your credit history and business performance.