Running a hotel is a complex and sometimes challenging job. You may be looking to give your venue a facelift, or perhaps to buy an existing hotel. You may be looking into starting a new establishment. This is where a hotel loan can come in. With it, you can finance a range of business expenses, including the purchase of new premises or equipment.
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A hotel loan is essentially business finance. The word 'hotel' is used to broadly refer to businesses in the hospitality industry, such as pubs, motels and venues for accommodation. The loan can be used to buy an existing hotel, start your own or to refurbish your current venue. There are a number of business loans you can apply for, depending on your needs. As with other business loans, you'll have to make regular repayments inclusive of interest up to a stated loan term.
You can use a business loan to cover a number of upfront and ongoing expenses. These include:
Purchasing or leasing the hotel property
Renovating or refurbishing your venue
Purchasing new furniture
Updating signage
Buying new catering equipment for the hotel kitchen
Updating sound and lighting equipment for live music
Covering liquor licensing and gaming approval costs
Purchasing poker machines
Paying staff salaries
Advertising and marketing promotions
Insurance premiums
What type of business loans can I apply for?
Loan type
About
Pros
Cons
Secured business loan
Requires an asset as security. This can be residential or commercial property. How much you can borrow will depend on the type of property offered as security. Commercial properties generally have a lower LVR than residential properties.
- Lower interest rate - Higher borrowing amounts - Can be used for any or multiple business purposes - Longer loan terms, sometimes up to 30 years
- You risk losing your asset if you default - Longer processing times as there's more documentation involved
Commercial property loan
Specifically designed in order to purchase commercial property. They generally come with higher interest rates than secured loans.
- You can fund the purchase of your hotel - Wide range of options available, including mezzanine finance. - Loans are specifically designed for the purchase of business property
- Higher interest rates than secured loans - You may need a large deposit, as the maximum LVR may be 70% or less.
Unsecured business loan
You won't need an asset to secure this loan, but borrowing amounts are typically lower. Interest rates are higher. This type of loan is useful for a small to medium sized cash injection.
- You don't need to offer any assets (and risk personal property) - Fast processing time as less documentation is required.
- Lower borrowing amounts - Your credit score will play a greater role in your ability to get credit - Interest rates for unsecured loans are higher
Equipment finance
You can get essential business vehicles and equipment with this type of loan. You can use the equipment as security for the loan. There are a number of equipment loans to choose from, depending on the needs of your business.
- Large variety of loans, including commercial hire purchase, chattel mortgage and operating leases. This allows you to select a loan that best suits your business's needs. - You can use the business equipment as security and get lower rates. - Own or lease business assets without affecting your cash flow
- Can be quite complicated to navigate and figure out which type of equipment loan is best for your business. - Fees and interest charges will increase the cost of the equipment. You'll be paying more than what the equipment is worth. - If you're purchasing equipment, you will be paying for a steadily depreciating asset.
Business line of credit
This is a revolving line of credit, allowing you to borrow funds as and when you want it. You only pay interest on what you borrow and not the entire credit limit granted to you. This is useful if you don't want funding in a lump sum. This type of loan can be secured or unsecured.
- Withdraw cash as and when your business needs it - You only pay interest on what you borrow - Useful for short-term cash flow shortages
- Not a long term finance solution - Can't provide the funds you need for large business purchases, such as premises or equipment - Interest rates are generally higher than for standard business loans.
Business overdraft
Overdrafts are attached to your business transaction account. It can be either unsecured, or secured for higher amounts. It allows your business to draw beyond what you have in your account, up to the approved limit. You pay interest on what you borrow.
- Convenient if you're worried you'll run short
- You'll have to exhaust funds in your account to be able to access this facility - Interest rates are higher than for standard business loans.
How do I know which type of loan is right for my business?
The best way to figure out which type of finance is right for you is to ask yourself the following questions:
What do I need the loan for? Working this out can help you narrow down the type of loan you need. If you need a short term cash flow injection, an unsecured loan or line of credit may be suitable. If you need funds for a large project, consider a secured loan or commercial property loan. Select a loan that's suitable for your loan purpose and that gives you the flexibility you need.
Do I want funds in a lump sum or on a revolving basis? If you want the funds to pay for a large purchase, a loan that offers lump sum funding may be more suitable. If you need the cash in stops and bursts, a line of credit may be more suitable.
How much do I need to borrow? Knowing how much you need to borrow can eliminate some types of hotel loans. Unsecured business loans, for instance, aren't suitable for large purchases like business premises. If you want to purchase property and refurbish it, a secured loan may be more suitable than a commercial property loan.
Do I have assets I can offer as security? Having assets can determine what type of loan you can apply for and how much you can apply for. Secured loans generally have a higher borrowing limit, and may be more suitable for large business expenses.
How can I compare hotel loans?
If you're in the market for hotel loans, it's easy to feel overwhelmed by the range of finance options available. To help make it easier, keep the following in mind when comparing:
Interest rate. How much you pay in interest will affect your monthly repayments and the total cost of the loan. Look for a loan that offers a low rate of interest. Comparing interest rates is a good way to check if the loan is competitive. You will have to choose between a fixed or variable rate of interest. With a fixed rate, you get the security of predictable repayments. With a variable rate, you can benefit from a lower rate if interest rates fall.
Fees and comparison rates. As important as interest rates are, you should keep an eye on fees and the comparison rate. This includes application fees and account-keeping fees. These will vary between lenders, so make sure you account for them. They will add to the cost of your loan. Some loans may offer low rates and high fees. This may work out to be more expensive, so keeping an eye out for fees is a good idea. The comparison takes into account interest and the fees you will be charged. It will give you an indication of the true cost of the loan.
Loan term. Your loan term is how long you have to repay the loan. The length of the term will affect how high your repayments are. That is, with a short term, you can expect higher monthly repayments. But with longer terms, you pay more in interest and fees. You can use a business loan calculator to get an idea of what your repayments will be like with different loan terms.
Loan amount. Lenders have set minimum and maximum lending amounts. Make sure the amount you need is on offer from the lender.
Loan features. Look for a loan that offers flexibility. Can you tailor the loan to suit the unique income and expense requirements of your business? If there are specific loan features you would like to have, make sure to check which loans offer these features. This can include early repayments, early exit without penalty and redraw facilities.
Turnaround time. Check how long the lender takes to approve the loan and transfer the funds to you. If you need your funds within a certain time, make sure the lender is able to accommodate this. Secured loans will generally take longer to process than unsecured loans.
Risks. Every business finance option, no matter how small, comes with its share of risks and downsides. For example, you may need to offer loan security. This comes with the risk of losing your asset if you fail to make repayments. Make sure you read the full terms and conditions before applying.
Eligibility. This may seem obvious, but you should only apply to a lender if you meet all their criteria. This includes your finances and credit history.
What expenses should I consider when opening a hotel?
Are you dreaming of opening your own hotel or pub? Starting a business from scratch is a huge undertaking with many traps and pitfalls along the way. It can be an expensive exercise. You may be surprised to discover just how quickly the costs can add up. With that in mind, here are some expense you'll have to account for when doing your calculations:
Buying or leasing office space
Loan fees and interest charges attached to your commercial property loan
Fitting out the space and finalising interior decor
External works and signage costs
Furniture (if you offer accommodation at your establishment, this will include beds and bedding, bedside tables, coffee tables, TVs, artwork etc. If you're running a pub, this will include lounges, chairs, stools, tables, artwork and the like).
Buying catering equipment for the hotel kitchen
Buying any sound, lighting and IT supplies needed to run the business
Purchasing gaming machines
Hiring staff and paying their wages
Marketing and advertising costs to spread the word about your new business
Web design expenses
Insurance cover
Licensing costs, not only for liquor and gaming licenses, but also for food safety and accommodation permits
A comprehensive business plan can help you develop a clearer picture of your financial situation and ongoing requirements. It can allow you to budget for expenses that may arise in the future.
What expenses should I consider when purchasing an existing hotel?
You may decide to buy an existing hotel instead of starting from scratch. If you can find an affordable property in a good location that has a solid customer base, a lot of the hard work will have already been done for you.
But there are several expenses you'll need to consider when working out your financial requirements. These include:
Purchasing costs depend on whether you are buying the business and leasing the premises or buying both the business and the premises
Interest charges and other loan fees
Renovation costs (both interior and exterior) if you want to give the hotel a new look
Upgrades to furniture and furnishings
Upgrades to other equipment, for example kitchen appliances or sound and lighting equipment
Marketing and advertising costs to promote the fact that the hotel is under new management
Any relevant licensing costs
Keep in mind that there are other running costs you'll have to consider for the daily management of your business. You'll need to have enough working capital and pay all the necessary insurance premiums, staff wages and other expenses.
How can I improve my chances of getting a loan?
Preparing a comprehensive application can increase your chances of getting approval. But there are a few things that could set you apart. These include:
Relevant experience. Managing a pub or hotel can sound like a dream, but it's a complex business to run. If you have relevant experience in the hospitality industry, this will help your business and your chances of getting a loan. Lenders will view you as less of a risk and will be more willing to lend.
A solid business plan. You may be required to submit a comprehensive business plan when applying for finance. You'll have to provide a realistic and detailed plan for your hotel and how you will make a profit. Make sure you provide as much detail as possible, as well as projections. This can help the lender make an information decision.
Details. Provide as much detail about the business's financials as you can, particularly if you're buying an existing hotel. Provide information about the hotel's current financial performance, including tax returns, a statement of profit and loss and a balance sheet. This can increase your chances of approval.
Offer an asset as security. Lenders view secured loans as less risky, and are more likely to fund it. If you're willing to offer an asset as collateral, this can increase your borrowing power.
How can I apply for a hotel loan?
🤔 Work out what type of finance you need, how much you need to borrow and what you can afford. 🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use Finder's comparison table to help you. ✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender. 🖨️ Organise and prepare the required documentation. This will make the application process easier. 📱 Apply. Most lenders have their applications online.
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Frequently asked questions about business loans for hotels
There may not be lending restrictions, but you will require licenses and authorisations. It's best to speak to the lender before applying.
Hotel loans cover a wide range of hospitality businesses, including pubs, wine bars and hotels.
Yes, lenders may allow you to make interest-only payments up to a certain amount of time.
Yes, it is possible to get a loan with an imperfect credit history. However, it will limit the range of loans available and the amount you can borrow. You may have to pay higher interest.
There are now a wide variety of lenders, including banks, non-banks and even online lenders that offer business finance options.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
On this page, you may choose the lender that would help you further on repairing your hotel. You’ll see a table with list of lenders that you may apply for a business loan with. After you compare your options and decide on which lender to apply a loan with, please click n the Go to site/Enquire now button to be redirected to their official page and start your online application.
Please make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision and consider whether the product is right for you or contact the lender directly for further info on your business loan application.
I hope this helps.
Please feel free to reach out to us if you have any other enquiries.
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I own a country hotel. I need to do repairs and pay back loan to bank.
Hi Brett,
Thank you for getting in touch with finder.
On this page, you may choose the lender that would help you further on repairing your hotel. You’ll see a table with list of lenders that you may apply for a business loan with. After you compare your options and decide on which lender to apply a loan with, please click n the Go to site/Enquire now button to be redirected to their official page and start your online application.
Please make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision and consider whether the product is right for you or contact the lender directly for further info on your business loan application.
I hope this helps.
Please feel free to reach out to us if you have any other enquiries.
Thank you and have a wonderful day!
Cheers,
Jeni