The leisure and recreation industry is one that is very attractive to many small business owners and investors alike.
One dimension of that industry which is particularly interesting is that of hotel accommodation. Yet if you already have a hotel and wish to expand your business, the chances are you will need the assistance of hotel finance in order to fund your plans.
Here we will consider some of the generalities associated with that and how you might wish to go about obtaining such help.
Hotels as a business
If you are seeking hotel finance in order to take on another property or even significantly expand one you already have, you will need to approach it as a business proposition.
In some cases, hotel ownership can become a question of emotional attachment for the owners concerned. Whilst that may be laudable and possibly even essential for success, it is important to remember that the potential providers of hotel finance won’t initially share that emotional engagement. They’ll be looking instead for hard business facts and figures.
This introduces the concept of the “business plan”. If you are looking to obtain significant sums of money by way of hotel finance, you’ll typically need to show that:
- the property you are purchasing or the one you are planning to expand has business potential sufficient to justify any lending that may be involved;
- for existing hotel properties, this will typically suggest hard evidence of a strong recent history of good business performance;
- for properties you are considering purchasing and converting, your plans and income projections will need to be based upon hard business metrics and verifiable forecasting;
- you and your existing business are able to inject some of your own capital into the enterprise;
- you and others you are working with have the required industry expertise to support your plans;
- in cases where you are planning an entirely new enterprise in an area already well-populated with other hotels, just what your unique sales proposition is and how you will leverage that to make a difference between you and your competition;
- you as an individual have an acceptable background of financial conduct and business management.
With appropriate preparation and focus, none of these requirements will be onerous or unreasonable. It’s worth remembering that typically lenders are looking for reasons to say yes to your application for hotel finance, rather than justifications to reject it.
Equity funding options
Another option that might be open to you is to raise hotel finance through your existing property holdings.
Assuming you already own property which has equity (typically defined as the difference between the property’s realistic market value and any existing finance you may already have on it), it may be possible to secure further hotel finance by way of a loan against that equity.
That becomes essentially a capital injection into your overall business that you can use for expansion or any other purpose. In some cases, people advancing such equity finance may require sight of your intended plans for its use before approving your proposal.
It should always be kept in mind that any property you use as security against a loan may be at risk in circumstances where you fail to keep up your loan repayment agreement.
Whether through private financing or equity release, providing your business plans are sound, it might typically be possible to secure appropriate hotel finance.
It is perfectly possible that your business is currently being held back by a lack of funding to support expansion and if that is the case, the good news is that there may well be routes open to you such as those above.
It might be worth finding out more.