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The 4 Commandments of Hotel Financing that Work

Did you know that there are over 52,000 hotels in the United States? Competition is tight in the hotel industry, which is why it’s important to stand out from the crowd. Renovations, additional amenities, and adding other improvements to make your hotel attractive and relaxing can be expensive. For this reason, the majority of hoteliers apply for hotel financing to fund hotel improvement projects. 

Keep in mind that there are different types of hotel financing options depending on your needs. SBA loans, equipment financing, business lines of credit, and asset-based financing are some of the options you can look into. Make sure to weigh your options and familiarize yourself with the commandments of hotel financing. 

  • Financial institutions will check if the hotel is flagged or unflagged. 

Before funding your business, most financial institutions will check whether your hotel is flagged or unflagged. Flagged hotels carry well-known names, so they tend to qualify for more favorable terms, better rates, and higher loan values compared to unflagged hotels. 

On the contrary, unflagged hotels are not affiliated with larger, more recognizable hotels. Even if an unflagged hotel is managed by highly trained staff, there’s a great chance that these hotels can receive lower terms because of the common belief that people are more inclined to choose a familiar hotel. While some people like the idea of staying in a boutique hotel, many tourists prefer flagged hotels for safety reasons. They also love the familiarity that comes with flagged hotels. 

  • The people who manage your hotel play an important factor in hotel financing. 

Another important factor for financial institutions is the hotel’s management. Regardless of your business credit score or the current state of your cash flow, borrower experience plays a huge in hotel financing. 

When it comes to purchasing apartment buildings, business owners can hire a property management company to lease the apartment and address issues that may arise. However, since hotels operate 24/7, chances are, there will always be issues that need to be addressed. 

Financing companies need to know whether you manage the hotel yourself or if you hired a management company. Potential lenders will know you have never worked in the hotel industry or if the hotel cannot reasonably support a full-time management team and this can affect your loan application. 

  • Make sure to check potential lenders’ experience. 

When it comes to finding the best loan for you, it’s important to remember that not all lenders are created equally. Don’t just go for lending companies that offer the best rates and terms. It’s also important to consider lender experience and credibility. Make sure your lender has experience with hotel financing. 

Nowadays, many commercial lending companies will try to lure you into doing business with them. It’s crucial to remember that a relationship between lenders and business owners last for years. Make sure to ask them about their experience with hotel financing – like the number of lodging deals they’ve closed, the type of hotel business loans they offered, as well as the size of the loan.  

If a potential lender is unable to give you details of the hotel business deals they closed in the past years, you may want to check out other lenders who can provide you with a decent track record. 

  • Hire the right lawyer to help you. 

Another step many business owners fail to follows is hiring the right lawyer to help you. This is especially important for first-time borrowers. It helps to work with lawyers who specialize in the hospitality sector – someone who understands the industry. You don’t have to hire a big shot lawyer from a famous firm. Instead, you can ask your regular lawyer for referrals if he/she isn’t confident with handling the deal. 

Keep in mind that the law varies in every state, so it’s best to seek solid legal help to avoid unnecessary problems. Hotel business loan applications are often straightforward, especially for online loan applications. However, there are lending institutions that may include caveats to protect their business from various scenarios. A trusted lawyer would come in handy to make sure your business is protected as well.

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