Qualifying for Hotel Financing
In 2022, with COVID fading quickly into the rear-view, the hotel industry is booming. Individuals are eager to enjoy the privileges of travel and staying at premier hotels, motels, and bed and breakfasts (B&Bs). However, starting and running a restaurant is no simple feat. The costs to grow and maintain a hospitality business takes significant hotel financing to stay afloat, especially during down periods or seasons.
While the costs to build, renovate, and furnish hotels are significant, with the right hospitality loan via hotel financing, you can get the liquidity you need to stay strong in the years to come. This article will cover the hospitality industry, adequate hotel financing for your business, and how to qualify for these hospitality loans.
The Hospitality Industry in 2022
The hospitality industry saw an unprecedented shift during the COVID-19 that drastically shifted industry standards for revenue. Along with restaurants, healthcare, and retail trade, the hospitality industry took a toll during stay-at-home orders and lockdown restrictions. In 2020 alone, global hotel revenue dropped 46% to 198 billion, with ripples extending into 2021. However, new growth in the industry is pushing the expected 2023 revenue to 285 billion and growing.
While the number of startup hotels and hospitality businesses has declined recently, the post-covid economic landscape is ripe for new companies to establish themselves. Further, already established hotels are also in a great position to expand their business. Consumers are eager to spend their money and enjoy the privileges of vacation and travel.
All it takes is suitable loans to begin hotel financing and get the liquidity you need to boost your hospitality business. Depending on where you are in your journey, there are several loan options to consider when qualifying for hotel financing.
What are the Best Loans for Funding a Hotel?
Depending on your needs, there are many hotel financing options for your hospitality business. The best options for you depend on your current goals and what stage of development you are in your hospitality business journey.
For instance, are you starting up a hospitality business from scratch and need startup funds to get your business rolling? Then SBA loans or a business line of credit are excellent options depending on your credit. Perhaps you’re looking to cover overhead costs during a down-season. In that case, invoice financing is the most practical option. Once you’ve established your goals for the extra funds you’ll need, you can consider the hotel financing options for your business.
SBA Loans for Hotel Financing
The small business association (SBA) is a government-run program that helps small businesses receive the funding they need to thrive in business. Rather than directly loan money to companies, they guarantee the risk for lenders who provide the funds. This guarantee means that the SBA covers the costs if you fail to make payments on the loan. However, because the SBA is taking on the loan risk, their loan requirements are steep, and qualifying isn’t simple.
For these reasons, SBA loans are best for established businesses with excellent credit and verifiable annual revenue. SBA loans are the premier hospitality loan option for those who qualify, and the SBA 7a loan is a strong choice for businesses. The 7a loan offers up to 5 million in financing for 10-25 years at APRs as low as 5.75%.
To qualify, you’ll need:
- 2+ Years in Business
- 650+ Credit Score
- 300k+ in Annual Revenue
Business Line of Credit
All businesses see asymmetrical cash flow and encounter unforeseen events. Little things add up, and sometimes there are dry periods where a little bit of financial juice is needed to stay afloat. In these instances, business lines of credit (LOCs) are an excellent option to cover costs and use some flexible funding to continue growing.
Business LOCs work like credit cards to give you a fixed revenue pool to draw from. You only take out as much as you need and pay interest on what you borrow. Because you’re not taking a large loan, you receive competitive interest rates and only need to pay back fixed payments. While the credit line only goes up to about $250,000, you still have plenty of funds to cover overhead costs and day-to-day expenses while you wait on revenue to pick up.
To qualify, you’ll need:
- 1+ Years in Business
- 600+ Credit Score
- 100k+ in Annual Revenue
Invoice Hotel Financing
like LOCs, invoice financing is an excellent option if you see fluctuations in business. Because hotels and hospitality businesses rely on heavy seasonal business with concurrent dry periods, hotel financing with outstanding invoices is a solid way to go.
With invoice financing, you take out a loan against future sales for your business. In cases where customers delay payment, or you have a lot of outstanding invoices, you can use those invoices as collateral for a loan. The loans are quick, offering funds within 24hrs at a 1-5% factor fee. Further, you can get up to 100% of the invoice’s value. Additionally, invoice financing is a valid financial strategy for startup hospitality businesses needing funds to start.
To qualify, you’ll need:
- 1+ Years in Business
- 600+ Credit score
- 130k+ in Annual Revenue
Qualifying for Hotel Financing Underwriting
Once you know your business goals and how you want to allocate your funds, the next step is to apply for the loan underwriting process. For most businesses, qualifying for hotel financing is a matter of meeting the financial requirements of each lender. Because lenders take significant risks, they need objective validation that companies can repay their loans fully and on time.
For most loans, a 600+ credit score, 2+ years in business, and $100k+ in annual revenue is enough to get started. For SBA loans, the requirements are much more stringent and involve significantly more paperwork. If applying for an SBA loan, ensure you have at least a 650 credit score and $300k in annual revenue.
When applying for hotel financing, lenders may look at your debt service coverage ratio, loan-to-value ratio, and debt yield. These factors give essential information on your overall trajectory and ability to repay loans in full. However, the most prominent factors will be your credit score, time in business, and annual revenue.
Qualify for Hotel Financing Today with BitX Funding
After an unprecedented economic environment following the COVID-19 pandemic and war in Europe, the hospitality business is back on the rise. Like many essential businesses, hotels saw a rough two years in business as pandemic restrictions forced many consumers to stay at home. Now, in the post-covid landscape, individuals are getting out and traveling like never before. In fact, the hospitality industry is projected to exceed its pre-covid global revenue by 2023.
However, after the economic episode of the past two years, hospitality businesses need to rebuild and consolidate moving forward. The best way to do so is with suitable hotel financing options for their business. If you’re interested in hotel financing options for your hospitality business, talk to the experts at BitX Funding to get started.