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Want to catapult your hotel to the next level? A hotel loan could be a great solution to provide your growing hotel business with an influx of capital, to start a new hotel, or to make the long-awaited upgrades to your facilities. Whatever the reason you need a loan, it’s important to understand your options so that you can make the most educated decision about what’s right for you.
Since finding the right loan can help you succeed in your business objectives, let’s take a closer look at what a hotel loan is, the benefits and how they work.
What is a hotel loan?
A hotel loan, like any loan, is a credit that’s given by a financial institution to help your business. The bank provides the money so that you don’t have to, and you can use this money to do a series of different activities in the hospitality sector, which can help your business grow or to create a new hotel business.
These reasons can include but are not limited to: remodeling, refinancing an existing hotel, purchasing new equipment such as printers and other IT equipment, hiring staff, and expanding your hotel, among others.
These loans can be adapted to fit your hotel size and structure, and your needs. The amount you can borrow will not only depend on the lender, but also the size of your operations. A smaller hotel might be able to borrow from $100,000 to $1 million, whereas big chains that have been in business a longer time may get up to $50 million.
Keep in mind the lenders will also take a lot of factors into account when deciding whether you are apt for receiving the money. They will look at how long you’ve been in operation, your cash flows, as well as what you intend to use the loan for, so make sure you have a clear goal in mind when you approach the financial institution.
What are the benefits of getting a hotel loan?
Now that you have a better understanding of what a hotel loan is, it’s important to point out that investing in your business financially is just as important as investing in the right hotel property management system.
Whereas with the right PMS you are investing in making sure you have the smoothest operations possible, with the right loan, you are investing in the future of your business. With that being said, there are many benefits to getting a hotel loan, which we’ll discuss one by one.
With a hotel loan you can take your hotel to the next level, making improvements structurally, aesthetically and functionally. There’s nothing like what a makeover can do for your hotel; it can attract a new target group, give you a reason to boost your prices, and improve guest satisfaction. With the right remodel, you may be able to attract Millennial travelers by following the Millennial travel trends.
No matter the size of the remodel, it takes capital to do so, that’s why a loan can be very helpful in providing an influx of money that will help make this remodel possible.
Some equipment can be necessary in order to improve the daily operations of your hotel, whether that be a PMS, or physical equipment like printers, computers, machinery for your hotel’s kitchen, and more, which can be quite costly.
By getting a loan, you can purchase what’s necessary to run your hotel better without having to worry about cutting into your cash flows. Freeing up money to buy the equipment that is needed to operate your hotel more smoothly will positively impact your business.
Cover operational expenses
One of the most important investments you can make in a hotel is in human resources, but you don’t always have the money necessary to hire these key players. This is where a loan can come in handy by giving you the means to grow your team, and being able to attract the best talent with attractive salaries.
The better your team, the better the service you can offer, so this is one of the prime benefits of credit from a financial institution. Learn how to build and manage the perfect staff.
Refinance and expansion
Sometimes you need more money in order to better organize your hotel and to expand your business.
A hotel loan is a great way to refinance by consolidating debts, having more predictable costs and lower monthly payments. This also frees up the money to think bigger, such as in terms of expansion. Expansion requires capital of course, and with a hotel loan, this is made possible.
Purchase an existing hotel
Part of expansion may be purchasing an existing hotel and growing your business to a multi-property business. Purchasing an existing hotel may also be an option in order to have a range of properties in a hotelier’s portfolio.
By borrowing the necessary money to do so, you can not only grow your potential revenue streams but also make a bigger impact with your brand by having more visibility, and more potential guests by having more rooms available to sell.
How do hotels loan work?
Hotel loans work like other credits from a financial institution. First you need to apply, presenting your financial records, reason for asking for the credit, and other information, which is generally the same no matter what bank you approach.
Once you’ve been approved, you’ll receive the money in your bank account so that you can start using the loan, and then once you start earning back the money from your investment, you can start paying back the money, usually in a time period of 10-30 years.
There are many types of financing to choose from, so it’s important to look at all the factors, to figure out which is the right one for you.
There are standard loans generally used for remodeling, and to cover other operational costs such as hiring new staff; there are hotel bridging loans, which make it possible to get the cash necessary to purchase a new hotel asset and at the same time find more permanent financing; there are preferred equity loans where lenders give credit to hoteliers in exchange for shares in the hotel; and there is small business hotel financing (SBA), which are government-backed funds for small businesses.
Hotel loans are a great way of getting the capital needed to invest in your business, whether that be starting a new hotel or revamping an existing one. The only way to ensure that you can succeed is to invest the time and money in making your hotel great. With a little help from financial institutions, you can get the missing link in order to make this growth possible.
Eva has over a decade of international experience in marketing, communication, events and digital marketing. When she's not at work, she's probably surfing, dancing, or exploring the world.
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Mews Data Dive 2023