Financing Options for Hotels and the Hospitality Industry
The hospitality industry is enduring a period of upheaval as start-ups have wedged their way into the industry and driven change and modernization. As part of this transition phase within the industry, many hotels and hotel brands are seeking ways of financing upgrades, updates, and new amenities. There are a variety of financial tools available to do so, which should help spark new growth within the industry.
Lines of Credit
Lines of credit are common tools used by businesses of all sizes, forms, and industries. This type of financing provides flexibility due to its revolving nature. Hotels can withdraw funds as needed from the line of credit. Once they begin to pay back their withdrawal, plus any accrued interest, those funds again become available for use.
This differs from a term loan, as loans are often given as a lump sum. A line of credit allows a hotel to take out money as needed so they don’t have to apply for multiple loans. Furthermore, lines of credit don’t usually require collateral. While secured lines of credit exist, they are not as commonplace as secured loans.
If a hotel or hotel brand requires short-term access to funds due to an issue with cash flow management, a bridge loan should help them achieve their needs. Bridge loans are short-term. They usually have terms of less than a year. However, to balance this out, they often have higher interest rates than long-term loans or lines of credit.
Bridge loans can be useful to the hospitality industry in several ways. Should a hotel need to invest in upgrades to improve revenue streams, a bridge loan can help provide the funds for said investment.
Investors offering bridge loans tend to look at the real estate first and the borrower second. That is, the hotel needs to be located somewhere that will lead to additional growth once the investment is made. These locations tend to have less competition but heavy demand due to its proximity to travel, commercial, or leisure centers.
If a hotel needs equipment but lacks the funds for the purchase, and would prefer not to take out a loan, leasing is a possibility. This financial tool gives hotels the ability to use any needed equipment, though ownership of the equipment won’t change hands. This can also be useful when the equipment lacks easy resale value and is only needed for a short period.
There are plenty of financing options available to the hospitality industry. The right financial tool will depend on the needs of the hotel and its current financial state.