It used to be the case that many financial lenders looked at hotels as risky bets, particularly by banks and other traditional financial backers. That perception has changed in the past several years as the hotel industry has picked up, attracting more financial lenders to an increasingly lucrative industry. Prospects are already looking up if you happen to be an entrepreneur looking to raise capital for your hotel, and by following some key tips, securing hotel financing will be even more likely.
It’s important to know that financial lenders are more likely to work out loans with individuals that have already done business with them. An existing client has established credibility with that lender, so they may offer more competitive mortgage terms and interest rates. These benefits can include an extended mortgage term that can allow less money per debt payment. For this reason it is good to approach a lender you know, or if you can, conduct some business with a lender before asking for a large loan.
Financial institutions also want to know that your business is capable of paying back the hotel financing they provide you. If your hotel is already in operation, they will want previous records of cash flow and other financial transactions. A hotel that is showing a loss will be a red flag. If you have multiple businesses that show strong income flow and profit margins, this will show you have more than one way to service the debt. On the other hand, poor performances in your other businesses may signal that your hotel could be losing money to prop up those enterprises. So a record of strong business accomplishment should work in your favor.
If your hotel is new with a very limited operating history or has yet to be constructed, you might worry it will be harder to prove that your enterprise will work. In this case, instead of trying to get hotel financing in a large portion, break up the amount of capital you want into smaller pieces. Especially if you’re building a new hotel, you should approach different lenders to fund the construction at different stages. This will decrease risk for the lenders.
Financial lenders are eager to do business with a proven entrepreneur, especially if the industry they work in is on the upswing. By establishing good relationships with a bank or another financial lender and proving that your hotel and any businesses you own are on solvent ground, your prospects for getting hotel financing will rise.