If you’re an entrepreneur looking to raise financial capital to put up a hotel, one of the key decisions you’ll make is choosing the kind of hotel you want. Financial lenders make decisions based in part on what kind of hotel you propose to finance. Hotels differ in size, the services they offer and their sources of cash flow. So if you haven’t made that final decision, you’ll want to take some things into consideration that could help you get hotel financing.
Full Service Vs. Limited Service Hotels
Generally, hotels are broken down into two categories, a full service hotel or a limited service one. Full service hotels offer a wide variety of accommodations such as pool facilities, rooms for meetings, fitness centers, and places to eat and drink, all of which provide multiple cash flows that will look attractive to a lender. However, some full service hotels may give lenders some doubts. For example, lenders consider resorts to be a higher risk because they depend on being in a well traveled location, such as a mountain, ocean, or famous landmark. Be ready to explain how your resort will be a big draw and can pay off your hotel financing.
Limited service hotels draw most of their income from providing rooms with few other services. However, they also offer the highest levels of net profit and greater efficiency that lenders appreciate. Furthermore, these kinds of hotels are not as strongly dependent on location and can be located off a heavily traveled highway. Still, if a hotel is located in a sparsely populated town instead of a highly populated area, a lender may not be convinced you’ll draw a lot of customers and you’ll end up with higher interest rates.
Finally, lenders generally are looking to deal with clients they already have a relationship with. If you don’t have a hotel in operation yet, you may want to choose a bank you’ve already done business with. If you do have a hotel in place, you should consider working with the bank that already handles the hotel’s everyday financial operations. If it is possible to do business with a lender before applying for a loan, it is well worth the effort to do so.
The key to securing hotel financing is convincing a bank or financial lender that your type of hotel will be successful. They will look at what type of hotel you plan to operate, how it will generate income, and where it is located so it can attract customers. By understanding these factors, you’ll be ready to make your best case to a prospective lender.