The hospitality business in the United States is big business. Building your first hotel in this industry is an exciting opportunity to grow and learn. If it’s your first property, finding funding can be a challenge, as financial institutions prefer to see proven experience for this large-scale project.
The costs involved in building a hotel, and even renovating an existing hotel, can be astronomical compared to other types of builds do to the extra plumbing, sprinkler systems, alarms and other requirements to protect against hazards. For such a large investment, it could be a while before you see any returns. But, this is not to say the work won’t be worth it.
There are a lot of expenses to consider for a new hotel build and in your loan request you’ll want to make sure you can cover the operating costs for the first few months as you build business and recuperate from the initial investment, which includes your down payment.
There are a few loans to consider when building for the hospitality industry. Some are better than others, but not all will fit your needs or situation.
A commercial real estate loan uses the property you are purchasing as collateral. An SBA loans are loans guaranteed to your lender by the Small Business Administration. Extensive documentation will be required to show you have the knowledge to operate and succeed in the hospitality industry.
A franchise loan allows you to step into a proven brand where the path to success is clearly established. This is important in establishing credibility with your lender. A franchise can be funded with an SBA loan, as long as your project expenses don’t add up to more than $20 million, or a conventional bank loan through a bank who already works with the franchisor.
For new construction, traditional banks and private lenders are possible options, but a real estate investment company may be your best option, as this type of lender is geared toward more expensive investment projects.
Refinancing is an option for later down the road if you find you didn’t borrow enough originally. This can re-establish interest at a lower rate and also lower your monthly payment. The extra funds from the refinance can be used for working capital. Again, SBA loans and traditional bank loans can meet your needs in the hospitality industry. You just need to know which will work best for you, taking into consideration banks prefer to work with existing clients and SBA loans are better for higher cost projects.