Want to raise the bar for your hotel? A hotel loan could be the perfect way to inject some extra cash into your expanding hotel business, open a new hotel, or complete those long-overdue facility improvements. Regardless of the cause of your requirement for a loan, it’s critical to have an understanding of what options are available so that you may choose what is best for you.
With that out of the way, let’s take a deeper look at what a hotel loan is, the advantages it offers, and how it functions since getting the appropriate loan may help you achieve your business goals.
Send us a message to discuss your loan options
What is a hotel loan?
Like any other loan, a hotel loan is a credit line provided by a financial institution to support your business. The bank will provide you with the funds to do the necessary work so you do not have to spend your own. You may use it for a variety of hospitality-related chores that will either help your current hotel business expand or start a new one.
Remodeling, refinancing an existing hotel, buying new equipment like printers and other IT equipment, adding workers, and expanding your hotel are a few examples of these causes.
The size, layout, and requirements of your hotel can all be taken into account when modifying these loans. In addition to the lender, the size of your business will also affect how much you may borrow. In contrast to large chains that have been in operation for a longer period of time, smaller hotels may only be able to borrow $100,000 to $1 million.
Remember that the lenders will consider a variety of variables while determining whether you qualify to get the loan or not. Depending on how long you have been in business, your cash flow, and the purpose of the loan will all be taken into consideration, so be sure to reach out to the financial institution with a specific plan in mind.
How does Hotel Financing Work?
Same as the other financing options offered by financial institutions the hotel loans work in the same way. No matter which bank you go to, you must first apply by providing your financial information, the justification for your credit request, and other required details.
Following the approval of the loan, the funds will be sent to your bank account after which you can start using the loan. Once your investments start bringing in profits, you can start to make payments until you pay off the loan completely.
Considering that there are various financing options that you can choose in the hospitality industry, it is crucial that you understand what you are doing and what you plan to do with the funds.
Hotel Financing Options for Purchase, Renovation & Refinance
Financing for Hotels – Purchasing
A smart business move may be to buy an existing hotel and expand your operation to include various properties. Another choice for a hotelier who wants to diversify their portfolio of properties is to buy an existing hotel.
In addition to increasing your prospective income streams, borrowing the money required to do so will increase your brand’s exposure, which will attract more potential customers and increase the number of rooms that are available for booking.
Moreover, you can also use the loan to purchase the necessities that will help you run the business. The day-to-day operations of your hotel may benefit from certain equipment, such as a PMS or more items like printers, laptops, kitchen equipment, and more, all of which may prove to be expensive. With a loan, you may make the purchases you need to manage your hotel more efficiently without having to be concerned about depleting your financial reserves. This way, your overall business will definitely benefit from you having the extra funds that you can use to improve the hotel making it more efficient.
Financing for Hotels – Renovation
By making structural, aesthetically pleasing, and practical upgrades, you may elevate your hotel to the next level all with the help of a hotel loan. Nothing compares to what a renovation can achieve for your hotel in terms of bringing in a new clientele, allowing you to raise your rates, which will in turn make your guests happier and eager to come back.
Doing any type of renovation will cost quite a bit. With a hotel loan, you will bring in additional funds to make the renovation successful without running out of money.
Financing for Hotels – Refinance
There are times when you simply need more funds so that you can improve the organization of the hotel in order to further expand it.
With more predictable rates and smaller monthly payments, a hotel loan is a wonderful method to restructure debts. Additionally, it frees up funds for broader ideas, like growth. Of course, funding is necessary for expansion, and a hotel loan makes this a reality.
Types of Hotel Financing
There are various hospitality business loans that you can utilize to further develop your business. Here are the most popular ones and how they work.
Mezzanine Financing
Mezzanine finance combines debt and equity financing and allows the lender the option, in the event of default, to convert the loan into an equity stake in the firm.
Standard Hotel Loans
As the name implies, a standard hotel loan has a fixed interest rate and a loan term and needs to be repaid monthly if not otherwise agreed. They are also called classic loans.
Permanent Loans
Permanent loans are a type of loan that is given long-term. Depending on the situation and context, the structure of the loan can vary.
Hotel Bridging Loans
Bridge loans for hotels frequently include funds for improvements and/or a PIP (process improvement plan). Personal guarantees, shorter closing windows, and a short duration (usually between 6 and 36 months) are additional features of hotel bridge loans.
SBA Hotel Financing
The U.S. Small Business Administration provides help for small firms to access cash by setting lending criteria and reducing lender risk. These SBA-backed loans offer a way for smaller firms to get the funding that they need.
Preferred Equity
“Stock” is a phrase used to describe equity or ownership in a company. Equity comes in two ways: common stocks and preferred stocks. Compared to common stockholders, preferred stockholders have a stronger claim to dividends or asset distribution.
Why Consider New Wave Loans As Your Hotel Lender
At New Wave Loans, we offer various loan programs in order to help our clients further develop their businesses. When it comes to hospitality financing, we can assure you that we offer competitive rates for both short-term as well as long-term loan programs. With a team of financing professionals, you will be in good hands.