Investing in Hotels and the Hospitality Industry
A good destination hotel can be a great investment, but securing financing to get off the ground can be difficult. Because of the scope and expense of hotel projects, many lending institutions require a nearly impossible threshold of past success or cash on hand. Knowing that, however, might be half the battle. If you are prepared with information not only about your plans for the property but with knowledge of what kind of hotel financing is available and appropriate for your project, the greater your chances for success!
Renovation Loan Options
Renovating an existing property is a big undertaking, but if you can show a thoughtful approach to handling the renovations, a good business plan and a strategy to drive traffic after completion, lenders will be open to hearing you out. Conventional bank loans are usually the least expensive route in this situation, though they take time and several layers to approve. A business line of credit can be very helpful along the way, as you only take out what you need. A bridge loan can be useful in hotel financing, as it will get you by until you can secure more permanent financing.
Franchise Loan Options
Buying into an existing franchise improves your chances with lenders, as you will have the resources of a proven brand to support you. Conventional bank loans are still a good avenue to pursue franchisees. The United States Small Business Administration (SBA) is open to supplementing loans for franchisees as well, through either its SBA 504 loan program, designed for projects under $20 Million, or n SBA 7a Loan for Commercial real estate, which tops out at $5 Million.
New Construction Loan Options
If you’re truly building from the ground up, the SBA will not be able to help you. In fact, any lender that does not specialize in $1Million + financing is automatically off the table. That said, traditional bank loans are still an option if you have a stellar proof-of-concept and well-researched business plan. A more likely avenue, though is to go seek out a private lender who has a history of investing in hospitality properties. Along the same lines, real estate investment companies who specialize in hotels tend to be aware of the associated costs and have deep pockets to pull from.
The hotel business is difficult, but it can pay huge dividends. Know your options, build a plan, and start raising the cash to get started!