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Compare business loans for hotels
Find the right finance solution to help you buy, upgrade or manage a hotel.
Running a hotel is a thrilling and sometimes challenging job. Regardless of whether you’re buying an existing hotel, starting a new establishment or looking to give your venue a much-needed makeover, you’ll probably need to borrow money to turn the vision you have for your business into a reality.
The good news is there’s a huge range of finance options available to suit your hotel business needs, so let’s take a closer look at how a business loan could help you.
7 types of financing to consider for hotels
|Financing type||Typical Amount||Pros||Cons|
|Commercial property loan||Up to 80% of the property’s value||Read our guide to commercial property loans|
|Equipment financing||Up to your equipment’s total cost||Read our guide to equipment financing|
|Line of credit||$10,000 to $1,000,000||Read our guide to business lines of credit|
|Term loan||$25,000 to $5,00,000|
|Unsecured loan||$1,000 to $100,000||Read our guide to unsecured business loans|
|Invoice financing||Up to 95% of the value of invoices due||Read our guide to invoice financing|
|Merchant cash advances||$2,000 to $50,000 or up to around 25% of your annual revenue||Read our guide to merchant cash advances|
Compare online business loans today
Representative example: Mary’s hotel needs an upgrade
Mary has owned and managed a medium-sized, 75-room hotel for a number of years and has decided it’s high time for some much-needed upgrades. She wants to paint the rooms a more modern colour, change the window treatments, upgrade some of the bathroom fixtures and buy new headboards, night stands and armchairs.
To do this in every room, she’ll need around $225,000.00. (This includes sales tax on purchased items as well as the cost of supplies, furnishings, labour and other expenses). Mary applies for a business loan from an online lender and is approved, thanks to her solid credit history. She signs the loan documents, and the funds are soon deposited into her business bank account.
|Cost of starting a home health care business (franchise)||$225,000.00|
|Loan type||Business loan (term loan)|
|Interest rate (APR)||7.99%|
|Loan term||4 years|
|Total loan cost||$263,608.80|
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
Which hotel business loan is right for me?
Whether you’re starting a new hotel or taking over the reins, there are plenty of upfront and ongoing expenses you will need to take into account. In addition to apparent costs, there are other factors you need to consider including:
- Why you need finance. Are you buying a hotel, purchasing new equipment, looking for a way to manage cash flow or borrowing for some other reason? This will influence the types of loans available to you.
- Your assets. Do you have valuable assets you can offer as security for the loan? If so, this will increase your borrowing power and also broaden the range of products you can access.
- Your credit history. It’s much easier for borrowers with good credit history to find financing than it is for borrowers with imperfect credit history.
Top expenses to consider
When opening a new hotel
Are you dreaming of opening your own hotel or restaurant? If so, remember that starting any kind of new business from scratch is a huge undertaking and one with many traps and pitfalls along the way. You may be surprised to discover just how quickly all the separate costs involved can add up to a substantial amount.
With this in mind, make sure to include the following expenses in your calculations when planning to open a new hotel:
- Buying or leasing office space
- Loan fees and interest charges attached to your commercial property loan
- Filling out the space and finalizing interior decor
- External maintenance and signage costs
- Catering equipment for the hotel kitchen
- Buying any sound, lighting and IT supplies needed to run the business
- Hiring staff and paying their wages
- Marketing and advertising costs
- Web design expenses
- Insurance coverage
- Licensing costs, not only for liquor, but also for food safety and accommodation permits
This is why it’s a great idea to develop a comprehensive business plan for your new hotel. This will help you develop a clearer picture of your financial situation – allowing you to budget for all potential future expenses that may arise.
When purchasing an existing hotel
If starting a new business from scratch sounds daunting, you may decide that you’re better off purchasing an existing hotel. After all, if you can find an affordable property in a good location that has a solid customer base, a lot of the hard work will have already been done for you.
However, there are still several expenses you’ll need to consider when working out your financial requirements, including the following:
- Purchasing costs depend on whether you are buying the business and leasing the premises or buying both the business and the premises
- Interest charges and other loan fees
- Renovation costs (both interior and exterior) if you want to give the hotel a new look
- Upgrades to furniture
- Upgrades to other equipment, for example kitchen appliances or sound and lighting equipment
- Marketing and advertising costs to promote the fact that the hotel is under new management
- Any relevant licensing costs
Then there are the other ongoing costs you’ll need to consider to effectively manage your business from day to day. These include having enough working capital to manage cash flow, paying all the necessary insurance premiums, paying staff wages and generally keeping your business as clean, inviting and up to date as possible.
What to look for in a hotel loan
- Low costs. Interest rates have a huge bearing on how much a loan will cost you in total over the entire term. Shop around to see which lender offers the lowest rate, but remember that there may also be high loan fees attached. Since loans can come with fixed or variable interest rates, be sure to only compare fixed-rate loans with other fixed-rate loans and variable-rate loans with other variable-rate loans. On the other hand, it’s easy to be sucked in by a great interest rate and not take any loan fees into account. When considering fees, remember to look not only for upfront and ongoing fees, but also for any penalties if you miss a repayment.
- Favorable terms. How long will you have to repay the funds you borrow? If you’re considering a short-term loan, will you be able to afford the repayment amounts? On the flip side, are you aware of just how much extra it will cost with a longer loan term?
- Flexible repayment schedule. Next, take a look at the repayment schedule the lender offers – can you tailor it to suit the unique income and expense requirements of your business? You should also consider how much the regular repayment amount will be – is it a figure you can reasonably afford to repay every week, biweekly or month?
- Expert assistance. Finding finance for any type of business can be confusing, so it’s worth talking with a business financing expert to help you assess all your options to choose the best one. Some online lenders will pair you with a representative after you inquire.
4 tips to maximize your chances of approval
Preparing a comprehensive application that satisfies all the relevant criteria is the best way to increase the chances of being approved for a loan. Of course, there are a few other things that will help the lender view your application in a more positive light:
- Get experience. Managing a restaurant or hotel is a dream for many people, but new venue owners are often unaware of just how complicated running a business can be. Being able to call upon experience in the hospitality industry will help make the day-to-day running of your new business easier and will also ensure that the lender views you as less of a risk.
- Develop a business plan. Many lenders will request a comprehensive business plan when you apply to finance a hotel. This requires you to outline a realistic plan and explain how you will make a profit. It’s essential that you provide detailed information and projections to help the lender make an informed decision about whether or not to offer you a loan.
- Know your numbers. The lender will want a full picture of the business’s financials before approving a loan, especially if you’re buying an existing hotel. Provide detailed information about the hotel’s current financial performance, including tax returns, a statement of profit and loss and a balance sheet to increase your chances of approval.
- Offer an asset as security. If you’re willing to offer an asset as collateral for your loan, this can significantly increase your borrowing power.
Frequently asked questions about business loans for hotels
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