A big reason hotels are so difficult to run is the myriad internal and external factors that can effect their finances. Most of these factors are out of the hotel’s control and don’t get any easier to avoid year after year. Negative reviews, unpredictable weather, changes in demand, and broken facilities are just a few problems that can hit at any time. You don’t know if the damage will be relatively minor or downright catastrophic. Businesses in similar positions might consider small business loans. But with so many different options available for so many situations, a hotelier might not be 100% sure of which type of small business loan is most advantageous for this particular financial pinch.
To ease the decision process, let’s narrow it down to two business funding programs that, at least from a logistical standpoint, appear to be highly appropriate for the average hotel.
Merchant Cash Advance: Why It Makes Sense
A merchant cash advance immediately stands out from the rest of the pack. It is typically recommended to virtually any business that performs the majority of its sales via debit and credit card. Coincidentally, the owners of these businesses tend to be particularly busy. As far as applications go, very few are as seamless as merchant cash advance. Minimal documents are required, and you can get funded in 24-48 hours. There’s no need for excellent credit or several years’ worth of business tax returns. Previous borrowers can even get a second merchant cash advance approved and distributed much quicker than the first one.
Even easier than the application, however, is the repayment structure. Busy entrepreneurs often do not have the time to remember to make manual monthly payments or calculate what their interest rate will look like next month. Neither is necessary for a merchant cash advance because payments are deducted automatically and your deduction (capture) rate never changes, regardless of how much you pay. Fixed payments in general are usually not ideal for hotels, which are accustomed to frequent dips in revenue or extreme ebbs and flows in cash flow. With a merchant cash advance, a slower month simply means a smaller payment. And if some external factor forces you to take a little longer than anticipated to pay off the debt in full, just let us know and we can work out an alternative to penalizing your budget.
Managing Unpredictability With A Business Line Of Credit
A business line of credit is traditionally the most sensible option for businesses that are highly prone to unexpected rough patches or expenses. Facilities break, furniture gets outdated, and suddenly you don’t have enough food to satisfy all of your guests during their free breakfast. Demand can change dramatically, for better or for worse. Your busy season, for example, might be shorter or more chaotic than usual. Maybe you’ll get a massive influx of guests because of a series of weddings taking place nearby. Think of a business line of credit as security for when something along these lines is preventing you from running your operation. You can act quickly, rather than letting problems linger and become more expensive
Compared to a merchant cash advance, a business line of credit is cheaper but not as accessible. Applicants must possess good credit and good cash flow. Every time you borrow money from a business line of credit, you have to make a payment the following month. The more money you can pay back at a time, the lower your effective interest rate will be.
Key Similarities And Differences
Hotels have a major advantage over other industries when it comes to figuring out terms and amounts for small business loans. Their business model is based on reservations, which provide a somewhat clear picture of their past and present financial health. Unlike other industries, hotels actually have an idea of how much money they are going to make over the coming months. The amount you receive for a merchant cash advance is determined by the amount of revenue you are projected to generate through debit and credit transactions within a given period. You can therefore take out a merchant cash advance when business is slow as long as you can prove that the busy season is shaping up nicely.
A business line of credit, on the other hand, is recommended to taken out well before you actually need it. You’ll get a substantial borrowing limit that you can use whenever you want. But because of the business line of credit’s terms, you should probably only borrow money shortly before a boost in revenue. Business lines of credit are meant to be used sparingly, or in little spurts. A merchant cash advance is meant to be used throughout a single period, or for a single long-term investment. So, your decision could very well come down to the length of your slow periods. If your slow periods are frequent but temporary, you are likely best suited for a business line of credit. If your slow periods are lengthy and they occur at the same time every year, a merchant cash advance may be a better choice.
Knowledge And Data Are The Real Requirements For Approval
Before looking at different business funding programs, consider what you know and what you don’t know in regards to cash flow. You might not be able to control the comings and goings of your industry but with our help, you will likely be able to control your budget. Don’t get overwhelmed by uncertainties. As long as you have the right business partners and the right small business loans for you, nothing can stop you from staying competitive.