The hospitality industry is undergoing a massive shift in the way hotels and resorts are being built and operated. One of the most significant shifts has been in the financing of these luxury hotel properties. There are now alternative and creative loan products available to help finance new hotels, as well as existing ones.
Lines of Credit
When a hotel owner is looking for flexible financing options, a line of credit may be the way to go. Acquiring a line of credit is faster and easier than getting a traditional loan, as preapproval is usually not a requirement. Instead of following strict guidelines and having to close before getting funding, hotel owners can simply draw money as they go with a line of credit.
While not all hotel owners have adequate equity on their balance sheets, those who do should take advantage of it. An impressive balance sheet can make up for poor cash flow when it comes to asset-based loans. This is because hotel owners can use collateral such as commercial real estate to get these loans, which may give them the chance to get their revenue up again.
A merchant advance is contingent on the success of the business. This financing option is different from a traditional loan because it’s not secured against any assets, but rather the future revenue stream of the hotel. Similar to a payday loan, a hotel owner can borrow money and pay back the principal plus interest at any time. But unlike payday loans, merchant advances are more suited for companies looking to invest in their long-term growth.
One of the largest factors in a hotel’s inventory is the equipment needed. Equipment leasing allows a hotel owner to make monthly payments on different items while getting upgrades when needed. This is a great option when funding isn’t available or the owner doesn’t want to take out a loan.
Bank Term Loan
Of course, one of the most common forms of hotel financing is the bank term loan. When a hotel owner needs long-term help with real estate purchases or acquisitions, a bank term loan usually offers the most affordable option. As long as the hotel owner can put up collateral and understands the terms, he or she can get a good amount of funding.
The hospitality industry is very profitable, but it also tends to be seasonable and unpredictable. Hotel financing may help businesses manage their capital year-round.