Business Loans For Hotels & Motels

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Why hotel and motel owners take out business loans

One of the biggest challenges faced by hotel and motel owners is cash flow. There are a great many fixed costs involved in running a hotel – including mortgage payments, insurance premiums, tax instalments, utilities, cleaning and maintenance, laundry and wages – but income can fluctuate widely depending on anything from the time of year to what’s happening in the local community.

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Unfortunately, you have to keep paying for your overheads as they fall due, even when your occupancy rate is low.

A cash flow crisis can bring down a hotel of any size, which is why many hotel and motel owners turn to business loans to boost working capital and make sure they can finance their fixed costs.

Online reservations are a vital source of business for most hotels and motels, and a business loan could give you the cash you need to you build a fully–optimised website, run an online marketing campaign to make sure potential guests can discover you, or affiliate with agencies like Wotif to generate more bookings.

Keeping your décor, fittings, furniture and IT systems up to date is key to keeping your customers satisfied, so you may need a business loan to refurbish your hotel, upgrade your facilities, or extend the range of services you offer to your guests.

What are the requirements for getting a business loan?

Getting a business loan can be easier than you think.

While you can still expect to be knocked back by the big banks unless you have a solid trading history, a top-rate credit rating and collateral to offer, there are plenty of alternative lenders out there willing to offer business loans to motels and hotels.

Each lender will have their own criteria when it comes to things like credit rating, how long you’ve been in business, and how high your turnover is. If you’re higher risk (e.g. if your credit score is low) you may still be able to get a business loan, although you can expect to pay a higher rate of interest to compensate for that risk.

The most important factor ALL lenders will look at is your capacity.

Lenders need to know that you will have enough cash – after all your expenses – to cover your loan repayments.

How to apply for a business loan

If you are applying to an alternative lender for a business loan, the process is usually quick and easy:

Create a business case to check how much you can afford to borrow.
Prepare your supporting documents – expect to be asked for:
  • Personal and business ID documents
  • 6 – 12 months bank statements
  • Evidence that you’ve been in business for the lenders’ minimum period
Choose your lender and loan product – be sure to shop around, because costs, terms and conditions vary. Be sure to find out about hidden fees and compare all the costs of each product, not just the interest or factor rate.
Complete a simple online application form and upload your supporting documents. Most lenders will respond within days or even hours. Some will even give an on-the-spot decision.

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What options are available to hotels and motels?

There are several types of small business loans you could consider, to support or grow your hotel or motel.

Unsecured small business loan

A short-term option, unsecured business loans are usually for between 3 months and 2 years.

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You can use the funds for any purpose. Many lenders will let you set a repayment schedule to suit your trading patterns.

Equipment loan

A specific-purpose business loan secured on the equipment you are buying.

The term will often be tied to the lifespan of the equipment. You will not be able to sell or upgrade the equipment until you have repaid the equipment finance.

Vehicle loan

There are several types of business car finance you can use to buy your work vehicles, including car loans, hire purchasing and leasing.

While your work vehicles are under finance you will not be able to sell or upgrade them.

Business line of credit

A business line of credit is similar to an overdraft facility, giving you access to cash up to an agreed limit, often with the right to draw, repay and redraw funds as you need them.

You only pay interest on what you borrow, but there are often set up and admin fees.

Business credit card

Business credit cards are great for covering day-to-day expenses and making purchases, but unless you clear the balance each month the cost can be extremely high.

Before entering in to any business loan agreement, be sure to seek professional advice. It’s also important to ensure you understand all of the costs (including all fees). You can get a head start by using our business loan calculator.

About the Author
Shaun McGowanCo-Founder of Lend Capital Pty Ltd

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