Loan Options in Hospitality
As big and broad as the hospitality industry is, one constant is that entrepreneurs in it will need to secure financing at some point. While this industry provides great potential upside to investors, it does require a great deal of capital to start and maintain. Here are some lending sources that can help startup business leaders build a hospitality empire.
Traditional Bank Loans
Let’s begin with the most standard and obvious financer: the traditional bank or credit union. These financial institutions are always looking for investment opportunities and are therefore willing to look at business plans in the hospitality industry. The advantage of banks is that they are a sturdy, reliable, government-backed body that will do what they say they will. Their biggest drawback is that they require many decision-makers to sign off on funding, and therefore take a long time to process applications. If you can spare the time, the rates and terms of bank loans may work for you. If not, you may be better served with other options.
Leases on Equipment
Equipment leasing can be extremely beneficial in the hospitality industry. Hotels need industrial washers and dryers to handle large amounts of laundry. Bars and restaurants need dishwashers. These items don’t come cheap, so sometimes it is better to lease them than buy them outright. With equipment lease loans, funding comes quickly (within 2-4 weeks) with comparable rates to traditional loans (6-8% vs. 5-10%.) As a bonus, most lenders will sell the equipment to the lessees at the end of the term at a fair, discounted rate.
For hospitality businesses that have restructured, or who have not yet established credit, SBA loans may be a good avenue to explore. The U.S. Government’s Small Business Administration (SBA) works with companies who cannot secure a traditional loan by essentially guaranteeing a portion of the principal to the lending institution and lessening the risk. Rates are therefore comparable to bank loans, and terms can range from 3 to 25 years, with funds available in two weeks to five months.
Alternative Lending Sources
Lastly, alternative lenders like angel investors or private investors who specialize in a specific industry (hospitality, in this case) can be a great source for funds. They will know the business inside and out, and funds will be available very quickly, usually within a week. The tradeoff here is that rates can go up to 25% and the term is short, usually under five years.