Hotel Financing: How to Qualify for Funding
At BitX Funding, we understand the importance of securing financing to grow your hotel business. Whether you’re looking to purchase a new property or upgrade your existing one, securing the right funding can make all the difference for hotel owners. In this article, we’ll explore how you can qualify for hotel financing and take your business to the next level.
Understanding Hotel Financing
Hotel financing is a type of commercial real estate loan designed specifically for the lodging industry. These loans can be used for a variety of purposes, including purchasing an existing hotel property, constructing a new hotel, or renovating an existing hotel. Hotel financing typically offers longer loan terms and lower interest rates than other commercial real estate loans.
In 2023, the hotel industry is booming, with COVID-19 fading quickly into the rearview. Individuals are eager to enjoy the privileges of travel and staying at premier hotels, motels, and bed and breakfasts (B&Bs). However, starting and running a restaurant is no simple feat. The costs to grow and maintain a hotel business takes significant hotel financing to stay afloat, especially during down periods or seasons.
While the costs to build, renovate, and furnish hotels are significant, with the right hotel loan via hotel financing, you can get the liquidity you need to stay strong in the years to come. This article will cover the lodging industry, adequate hotel financing for your business, and how to qualify for these motel loans.
The Hotel Industry in 2023
The hotel industry saw an unprecedented shift during COVID-19 that drastically shifted industry standards for revenue. Along with restaurants, healthcare, and retail trade, the hotel industry took a toll during stay-at-home orders and lockdown restrictions. In 2020 alone, global hotel revenue dropped 46% to 198 billion, with ripples extending into 2021. However, new growth in the industry is pushing the expected 2023 revenue to 285 billion and growing.
While the number of startup hotels and lodging businesses has declined recently, the post-covid economic landscape is ripe for new companies to establish themselves. Furthermore, already established hotels are also positioned to expand their business. Consumers are eager to spend their money and enjoy the privileges of vacation and travel.
All it takes is suitable loans to begin hotel financing and get the liquidity you need to boost your lodging business. Depending on where you are in your journey, there are several loan options to consider when qualifying for hotel financing.
What are the Best Loans for Funding a Hotel?
Depending on your needs, there are many hotel financing options for your hotel business. The best options for you depend on your current goals and the development stage in your hospitality business journey.
For instance, do you start a hospitality business from scratch and need startup funds to get your business rolling? Then SBA loans or a business line of credit are excellent options depending on your credit.
Perhaps you’re looking to cover overhead costs during a down-season. In that case, invoice financing is the most practical option. Once you’ve established your goals for the extra funds you’ll need, you can consider the hotel financing options for your business.
SBA Loans for Hotel Financing
The small business administration (SBA) is a government-run program that helps small businesses receive the funding they need to thrive in business. Rather than directly loan money to companies, they guarantee the risk for lenders who provide the funds. This guarantee means that the SBA covers the costs if you fail to make payments on the loan. However, because the SBA is taking on the loan risk, their loan requirements are steep, and qualifying isn’t simple.
For these reasons, SBA loans are best for established businesses with excellent credit and positive annual revenue. SBA loans are the premier hospitality loan option for those who qualify, and the SBA 7a loan is a strong choice for businesses. The 7a loan offers loans up to 5 million financing for 10–25 years at APRs as low as 5.75%.
To qualify, you’ll need:
- 2+ Years in Business
- 675+ Credit Score
- 250k+ in Annual Revenue
Business Line of Credit
All businesses see shifting cash flow and encounter unforeseen events. Little things add up, and sometimes there are dry periods where a bit of financial juice is needed to stay afloat. In these instances, business lines of credit (LOCs) are a magnificent option to cover costs and use some flexible funding to continue growing.
Business LOCs work like credit cards to give you a fixed revenue pool to draw from. You only take out as much as you need and pay interest on what you borrow. Because you’re not taking a large loan, you receive competitive interest rates and only need to pay back fixed payments. While the credit line only goes up to about $250,000, you still have plenty of funds to cover overhead costs and day-to-day expenses while you wait on revenue to pick up.
To qualify, you’ll need:
- 1+ Years in Business
- 600+ Credit Score
- 100k+ in Annual Revenue
Invoice Hotel Financing
Like LOCs, invoice financing is an exceptional option if you see fluctuations in business. Because hotels and hospitality businesses rely on heavy seasonal business with concurrent dry periods, hotel financing with outstanding invoices is a solid way to go.
With invoice financing, you take out a loan against future sales for your business. In cases where customers delay payment, or you have a lot of outstanding invoices, you can use those invoices as collateral for a loan. The loans are quick, offering funds within 24hrs at a 1-5% factor fee. Further, you can get up to 100% of the invoice’s value. Additionally, invoice financing is a valid financial strategy for startup hospitality businesses needing funds to start.
To qualify, you’ll need:
- 1+ Years in Business
- 600+ Credit score
- 130k+ in Annual Revenue
Qualifying for Hotel Financing:
Qualifying for hotel financing requires careful planning, preparation, and a strong financial profile. Lenders consider several factors when determining whether to approve a hotel loan, including:
- Credit: Lenders will evaluate the borrower’s credit score and credit history to determine their ability to make loan payments on time. A strong credit score and a history of responsible borrowing can increase the chances of approval.
- Collateral: Lenders typically require collateral to secure the loan, such as hotel property or other assets. The value of the collateral and its ability to generate revenue can affect the lender’s decision.
- Financial performance: Lenders will review the hotel’s financial statements to assess its revenue, profit, and cash flow. A history of strong financial performance can increase the chances of loan approval.
- Experience: Lenders prefer borrowers with prior experience in the hospitality industry, such as owning or managing hotels. This demonstrates an understanding of the risks and challenges associated with running a hotel business.
- Business plan: A business plan that outlines the hotel’s goals, strategies, and financial projections can demonstrate the borrower’s ability to manage and grow the business, which can increase the chances of loan approval.
- Down payment: A sizable down payment, usually 20-30% of the total loan amount, can reduce the lender’s risk and increase the borrower’s chances of approval.
Qualify for Hotel Financing Today with BitX Funding
BitX Funding is the ideal choice for hotel financing because we are a marketplace for small business loans, connecting our clients with the right lenders and loans. With years of experience and trusted expertise in the industry, BitX is considered the authority for hotel financing.
With the hotel industry projected to exceed its pre-covid global revenue by 2023, now is the time to consolidate and rebuild your business. Our team of experts is ready to assist you in finding the right hotel financing options for your specific needs.
Take the first step towards securing your hotel loan today by contacting BitX Funding. Let us help you take your hotel business to new heights! Call now at 203-763-1430, ext 101 to discuss your funding requirements.
For more information on hospitality loans, contact BitX Funding by phone or email, or fill out the form below.
