Starting or running a hotel costs a lot of money. Most successful hotel owners know how to utilize financing plans to ease the burden of the high expenses. By exploring different funding options and choosing multiple lending products that work right for you, you can maintain working capital and stay flexible with your finances.
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. The second funding option we’ll go over is a business line of credit, which is a flexible lending tool with no purchase restrictions. Finally, we will discuss how equipment financing can help you finance your hotel.
SBA Loans for Hotel Financing
SBA loans are a long-term loan product that are funded by banks and partly insured by the government. For real-estate SBA loans, the terms are always 25 years. This type of loan is essentially a government bond for banks – as lenders, a portion of the amount borrowed is guaranteed back by the government if the borrower cannot pay.
SBA loans are relatively restrictive compared to other traditional lending options. The credit check is extremely thorough, borrowers often must have collateral to put up in addition to a strong credit history. However, real estate and other assets from the hotel can be used as collateral. Talk to your financial professionals about the possibility of a SBA loan for your hotel, as many hotel owners have utilized this option.
SBA loans are beneficial for hotel lending because of the large amounts that can be borrowed if you qualify. SBA loans are typically used for large expenses, like refinancing debt or purchasing real estate or buildings 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 for businesses. 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, employee, to updating things in the hotel or simple cash flow needs, you can use your line of credit for anything your hotel needs.
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. After the lease terms, 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 to purchase the equipment outright for you. The hotel pays the equipment financing company payments until the total amount is payed off.
A smart hotel owner knows how to utilize multiple payment options to maintain working capital and to 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 crises.
SBA loans, business lines of credit, and equipment financing are just three of many options available for hotel owners to finance their hotels. Speak with your financial professionals to find out which options work best for you with your credit history and business performance.
Speak with an SMB Compass Lending Advisor today so we can help expedite the loan application process for you. Apply today!