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Intro To Business Loans For Hotels, Motels & Lodging
Few businesses understand the struggles of seasonality more than hotels and motels. Slow seasons can be downright treacherous, and it’s getting harder and harder to predict when they will start or end. Busy periods can arise out of nowhere as well. However, hotel guests tend to make reservations in advance when business is slow. If online images don’t show stylish furniture and amenities at this time, potential guests will simply give their business to the myriad other hotels in the area. United Capital Source has access to business loans for hotels, motels, and lodging that wish to stay competitive throughout the year, regardless of the ups and downs caused by sudden expenses and shifts in demand.
In this guide, we’ll answer the following questions and more:
What Are Business Loans For Hotels & Motels?
Business Loans for Hotels and Motels are business loans geared towards the cash flow cycles and recurrent expenditures of hotels and motels. In addition to short-term needs and larger purchases, business Loans for hotels can bridge gaps in cash flow during slow seasons.
Business loans for hotels can come in the form of:
- Business Term Loans
- SBA Loans
- Business Line of Credit
- Equipment Financing
- Working Capital Loans
- Merchant Cash Advance
- Revenue-Based Business Loan
How Do Business Loans For Hotels & Motels Work?
Each of the products listed above can suit a different type of expense or cash flow problem. For example, hotels often face the dilemma of preparing for the busy season during the slow season. They can upgrade their furniture and amenities and launch advertising campaigns while potential guests are planning upcoming trips. Two logical solutions for seasonal issues are a Merchant Cash Advance and a Business Line of Credit.
A Merchant Cash Advance is particularly appropriate for hotels because most of their guests pay via credit card and make reservations ahead of time. This gives hotels a reasonably clear picture of how much revenue from credit card sales they’ll generate in the coming months. The borrowing amount and cost for a Merchant Cash Advance are based on previous and future credit card sales. You can get approved when business is slow, make your necessary investments, and not have to worry about making substantial payments until the busy season begins.
A Business Line of Credit, on the other hand, is best suited for hotels that are always dealing with sudden expenses. Maybe some guests have canceled their reservations out of nowhere. Perhaps one of your facilities needs repairs, and you’ve just purchased a new order of retail inventory. If these things happen to your business quite frequently, a Business Line of Credit might be the perfect solution. It’s designed for short-term expenses since you’re supposed to pay off the full balance as quickly as possible. And once you pay back what you’ve borrowed, that money becomes available again. To clarify, you don’t have to continuously apply for funding every time you need extra cash to keep your business running.
Hotel Business Loan Options Compared
|Loan types||Max Amounts||Rates||Speed|
|Merchant Cash Advance||$7.5k – $1m||Starting at 1.09||1-2 business days|
|SBA Loan||$50k-$10m||Starting at 5%||3-5 weeks|
|Business Term Loan||$10k to $5m||Starting at 5%||1-3 business days|
|Business Line of Credit||$10k to $250k||Starting at 8%||1-3 business days|
|Equipment Financing||Up to $5m per piece||Starting at 5%||3-10 business days|
|Revenue Based Business Loans||$10K – $5m||Starting at 9%||1-3 business days|
What Are The Advantages of Business Loans For Hotels & Motels?
Small business loans allow you to stay competitive despite the looming threats of seasonality and sudden expenses. You can make upgrades so they can be finished when customer interest peaks. If a cost arises during one such period, you can act quickly even when business is slow.
The ability to cover essential expenses amid changes in the weather is crucial for hotels. Typical conditions, like a snowy winter, a chilly fall, or a clear, hot summer, aren’t so ordinary anymore. Even if you stay on top of your cash flow, it’s nearly impossible to predict what kind of season you’ll have. Thus, there’s a good chance that your slow season lasts a little longer than usual, or your busy season doesn’t deliver like it usually does. Business loans prevent these uncertainties from impeding your growth or general stability.
Compared to other industries, hotels may be less likely to run into problems when repaying debt. When deciding the right time to apply, they can look at their current reservations and reservations from the same period last year.
Lastly, it’s crucial to note that business loans for hotels do not require entirely consistent cash flow. You can still get approved for most of the products mentioned above even if revenue tends to fluctuate month-to-month.
What Are The Disadvantages of Business Loans For Hotels & Motels?
Some hotels might avoid debt solely because they can’t predict what the weather or demand will look like in the coming months. Imagine having to pay off debt when reservations are being canceled left and right. What initially seemed to be just a little rain could turn out to be a catastrophic storm.
It’s also hard to determine how far you should go in terms of renovations. There’s always more you can do to make your rooms look more updated. Should you also renovate your pool or lounge area? How much is too much? This makes it challenging to figure out how much you should borrow.
And once you’ve executed your investment, you might find that a nearby competitor has taken a great deal of your business. After all, a 2012 study found that just 8% of 4,000 travelers are always loyal to the same hotel brand.
Who Qualifies For Hotel Business Loans?
Approved businesses generally met the following criteria:
How To Apply For Hotel & Motel Business Loans:
The amount of paperwork required for the application depends on your chosen product. For most products, funds can be approved and distributed in up to three business days. Here’s how to apply:
Step 1: Choose the Right Product
The first step is choosing the most sensible solution to the problem at hand. This should require a decent amount of research, as each product is designed for different types of expenses and cash flow cycles. Are you looking to cover a short-term or long-term cost? Is demand expected to increase or decrease in the coming months?
Considering the funds’ purpose will also help us determine the correct borrowing and terms for your needs.
Step 2: Gather Your Documents
Here are the documents and information required for the seven products mentioned above:
- Driver’s license
- Voided business check
- Bank statements from the past three months
- Invoice for equipment (for Equipment Financing)
- Credit card processing statements from the past three months (for Merchant Cash Advance)
SBA Loans require additional documents and information. To learn what’s needed for the SBA Loan application, visit our SBA Loan page.
Step 3: Fill Out Application
You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.
Step 4: Speak to a Representative
Once you apply, a representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This way, you won’t have to worry about any surprises or hidden fees during repayment.
Step 5: Receive Approval
If and when you’re approved, funds for Business Term Loans, Business Lines of Credit, Working Capital Loans, Equipment Financing, Merchant Cash Advance, Revenue-Based Business Loans, and Accounts Receivable Factoring should then appear in your bank account in anywhere from 24 hours to one week. For SBA Loans, it usually takes 3-5 weeks to receive funding.
Your Business Financing Gets Set Up – Now What?
Your business loan isn’t just a way to get financing for your business. It’s also an excellent opportunity to start building (or improving) your credit.
Regardless of the type of business loan you get, make all of your required payments on time and in full. If you get a business credit line or another form of revolving credit, keep your balance below the credit limit.
Consistently making your business financing payments on time and in full will positively impact your credit. And that means preferred rates and terms when you next need business financing.
What If I’m Declined For Hotel & Motel Business Loans?
If we decline your application, it might be because you applied for the wrong product for your cash flow. In this case, we would likely recommend a different product with a less hazardous repayment structure.
We might also decline your application after determining that you cannot afford to take on more debt at this time. Instead, your needs and financial circumstances might be better suited for another financing tool, like a business credit card or even a personal loan. Both options can be accessed through UCS and are usually much easier to qualify for than business loans.
If your credit score is preventing you from accessing financing, you should consider our credit repair services. We can help you identify the issues that are keeping your score down and develop practical solutions for eliminating them.
People Also Ask:
Can I Get a Business Loan To Buy a Hotel?
Yes, you can use a business loan to purchase an existing business. However, this is only possible if you’re currently running another business with strong cash flow and profitability. Business loan providers rarely approve loans for buying existing businesses if you’ve never owned one before. If you aren’t currently operating a profitable business, you must have some form of reasonable equity to invest, like real estate.
Which Hotel Expenses Can I Cover With a Business Loan?
Business loans can be used to cover a myriad of expenses for hotels, including (but not limited to):
- Furniture upgrades
- Upgrades to other equipment, like kitchen appliances or lighting equipment
- Covering payroll and other operational expenses during slow periods
- Opening a gift shop
- Purchasing retail inventory for a gift shop
- External maintenance and signage
- Purchasing catering supplies for the hotel kitchen
- Adding property
Can I Get a Business Loan For a Hotel or Motel With Bad Credit?
Yes, five of the seven products mentioned above are accessible for borrowers with bad credit. Your rates may be higher, and your terms may be shorter because bad credit makes you more likely to default. However, if you have strong cash flow or can provide collateral, your bad credit may have less impact on your rates and terms. We can also customize your terms and payment frequency to ensure that you can make payments while staying current on other bills.
For some products, your credit score is irrelevant. Approval for a Merchant Cash Advance is based on your debit and credit card sales volume. With Accounts Receivable Factoring, approval depends on your customer’s creditworthiness, not your own.
The only products that are not accessible with bad credit are Business Term Loans and SBA Loans. Compared to the other five, these options carry higher borrowing limits, lower rates, and longer terms. If you have bad credit, you’ll be assigned shorter terms to ensure you repay the loan in full.