How to Get Funding for a Hotel
From acquiring a hotel to investing in an operational business, you will likely need hotel finance at some point in your journey. Learn how to get funding for a hotel in this guide from Rangewell.
The right finance can make or break a hotel. Starting and running a hotel business can be a very expensive operation with many moving parts. From room management to catering and events, you need to ensure smooth operations in every aspect of your hotel to guarantee success.
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The hotel industry is still recovering from the COVID-19 pandemic, during which the majority of businesses closed their doors and lost significant revenue as a result. For many hoteliers, government support was difficult to obtain, and some turned to short-term finance to keep their books in the black. As the hotel industry looks towards the first fully operational season since 2019, now is an ideal time to revisit any existing business loans and reassess what works for them.
Furthermore, the rise of UK holidays has led developers to turn their attention to the building and redevelopment of new hotels. It’s not just large commercial hotel development projects either; we’ve seen an increase in finance applications for smaller businesses, such as independent hotels and boutique hotels and guesthouses.
With a wide variety of financing options available to hoteliers, it can be difficult to determine which is the right product for you or whether you need a combination of multiple products to meet your needs. This is where Rangewell comes in. We’re your finance partners. When you get in touch with us, we help you assemble your application and identify any risks that might impact what the lenders can offer. Then we search the whole of market, including a number of specialist hotel lenders, to find the best funding for your circumstances now and your future plans.
Ready to get started with your funding application? Apply for hotel finance today, or keep reading to learn more about forms of hotel financing and how to get funding for a hotel.
Hotel industry outlook
Before starting your hotel finance application, it’s important to take the time to understand where the market is going and how the last couple of years have affected the hospitality industry as a whole.
Hoteliers have been among those hardest hit by the pandemic as they could not adapt like many other businesses in the wider hospitality industry, such as restaurants offering takeaways or delivery. The hotel industry as a whole is not expected to return to pre-pandemic levels until Q4 2022.
However, once hotels received the green light to reopen their doors, the industry reported an influx of visitors as many UK holidaymakers chose to stay in the UK for their holidays rather than travel abroad. Nearly a third of UK residents said the pandemic made them more likely to holiday in the UK rather than abroad in 2020 and 2021. While annual domestic overnight tourism spending is still short of pre-pandemic levels, 2021 statistics show healthy growth in this area.
So, what does this information mean for hoteliers? Firstly, it’s always advisable for hotel developers and owners to stay in the know and closely watch any trends. That’s not to say you should react quickly to every upcoming trend or gimmick, but this level of research will prove useful when it comes to writing your business plan and determining where you see your hotel in 5, 10 and 15 years.
So, with that in mind, let’s take a look at hotel business plans, including why they matter and how to write one.
Write a hotel business plan
An up-to-date and comprehensive business plan is essential for any entrepreneur looking to seek finance. When determining the finance available to you, lenders will look closely at your past and current business operations and any potential risks to their investment. The business plan is the perfect place to address all of this.
Although the executive summary is typically found at the start of a business plan, we recommend writing it last as it should encompass all of the most important parts of the document. There are many instances in which only this part of the business plan will be read, so it helps to frame what’s to come for the reader.
Ideally, your executive summary should include highlights from the following sections, such as key financial figures, an outline of how you intend to spend any future investment and other important information that lenders, private investors and other stakeholders should know.
The bulk of the business plan should explore the ins and outs of your business in detail. Even if your hotel business has been in operation for a long time, it still pays to revisit the business plan or even start fresh, as this is a great opportunity to take a step back and plan for the future.
The operations section of your business plan is different for every hotel, but you should look to include:
- Your management structure
- Your staff numbers and roles
- Details of each part of your business, including opening times, e.g. hotel, restaurant, bar
- Room capacity
- Maintenance plan
This section aims to give the reader a detailed overview of how the business is run, who is involved, and how each part of the hotel fits together. Even if your hotel is just a plot of land now, it’s still important to think about these factors as it will help you calculate certain upfront and ongoing costs.
Speaking of costs, your financial accounts should make up a large part of your business plan. If your hotel is currently operating, then the most recent financial accounts will show your current performance to lenders and investors.
Furthermore, you should include information about your capital stack: the structure of your finance. This should demonstrate your equity, investment and any current hotel loan - such as a commercial mortgage and any other kind of loan or finance tied up in your business.
This is one of the most critical parts of your business plan for potential investors or lenders, as it shows any existing debt and risks to their investment. You should look to include the most up-to-date figures you can, including any sales projections.
Both new and existing hotels will benefit greatly from carrying out a competitor analysis. Explore the other hotels in the local area and determine what makes yours stand out. You can also look into their pricing structures, special offers and any other factors that attract new and repeat customers to your competitors nearby.
Often, visitors will have an idea about the area in which they want to stay and maybe even a vague budget. With this information, they will scour the internet to find the best hotel to meet their needs. Taking the time to look closely at your competitors and ensure you are rising above the local standard is the first step towards a solid sales and marketing plan.
Sales and marketing strategy
So, let’s talk about sales and marketing. What’s the difference? Well, sales cover your strategy of selling, and marketing is how you spread the word about your hotel. For example, any third-party partnerships on comparison websites or booking calendar applications are part of your sales strategy. While both online and offline advertising, your website, your social media and any print leaflets all fall under your marketing strategy.
You might find these strategies intimidating, or you may even find that you don’t have the knowledge in-house to deliver everything that’s expected of a hotel in terms of sales and marketing. Appointing a marketing consultant, for example, requires an upfront investment, but it could prove profitable in the long run.
So, some business owners choose to apply for funding to pay for outsourced sales and marketing experts so they can reach new audiences and boost profitability.
This is certainly not an exhaustive list of sections to include in your hotel business plan. However, it’s a good starting point. If you need help putting together a business plan to support a finance application, don’t hesitate to get in touch with Rangewell today and we’ll help you to position your hotel business to appeal to lenders.
Finance for hotel development
In this guide so far, we’ve talked a lot about operational hotels and how finance can help, but what about if you are planning a hotel development? Developing a hotel is a costly process, especially if you intend to build from scratch or even redevelop an existing property. That’s why hotel developers should seek to form a strong partnership with a finance broker you can trust to find and secure the best finance for each stage of your project.
From securing the land or initial property through to funding the development and ongoing operations, there are various stages of hotel development requiring different levels of funding. Typically, hotel development funding is issued in two parts, or possibly three if you require a short term bridging loan.
The first part covers the cost (minus your equity) of the land or property purchase. In most scenarios, this is your commercial mortgage. The second part of the loan is the building and development costs which can vary significantly depending on your plans. Most of the time, you’ll receive this funding in stages throughout the project, so proper budgeting and accurate planning is critical to make sure there are no delays caused by funding shortages.
Funding a new hotel development
Even the smallest hotel development requires a significant upfront investment. Should you choose to start from a plot of land or purchase a property at auction, you may find a bridging loan is right for you as it is a short-term funding package that can appear in your account quickly. Proof of funds allows the project to progress and gives you time to apply for the commercial mortgage and other development finance you’ll need to turn this project into a reality.
If this is your first hotel development, then it pays to have a team of experts on-hand to demonstrate to lenders that you understand the risks and have the right people supporting you. From contractors to investors and stakeholders, you might want to consider including some of their information in your business plan, especially if you haven’t got much experience in the hotel industry.
Depending on the finance you need, you might need to secure the funding against an existing property, such as a completed development. However, unsecured loans do exist and there are other ways around finance security if you don’t have the assets to your name.
Understanding the best approach for your circumstances requires expert advice and guidance, so don’t go it alone. Speak to Rangewell about hotel development finance today.
Funding a hotel redevelopment
Time for an upgrade? Redeveloping your hotel requires both investment for the project as well as ongoing funding to support cash flow, subject to the partial or full closure of the hotel. So, while you have made the decision to redevelop the hotel to improve customer experience and profitability in the long run, you might find that it’s a tricky balance maintaining cash flow without the income required.
So, whether you are building a new wing or planning a hotel renovation, you will need to determine the timeframe and ensure you have the cash to support the business throughout, as well as pay for the work.
To learn more about hotel construction loans and funding hotel conversions with hotel development finance, visit our dedicated page or get in touch with the Rangewell team today to start a conversation.
Finance for a struggling hotel
If you’ve found your hotel is currently in or heading towards a difficult financial situation, then you would be forgiven for thinking that finance isn’t the right answer for you. However, if you already have debt, then it’s worth talking to an expert at Rangewell about refinancing and debt consolidation.
Particularly if you took out finance during the pandemic, you might find that you are eligible for finance on better terms, or you might be able to combine several lending packages into one. If paying your existing debt is impacting your cash flow, then speak to Rangewell, and we will take a look at your business as a whole and help you to find the best solution to keep the business going through these difficult economic times.
There are so many instances in which refinancing can be beneficial for hoteliers, not least those who require debt consolidation. Like residential mortgages, you may find that remortgaging your hotel into a better product may improve cash flow and release funds to invest in other parts of your business.
The hotel industry has experienced a lot of change over the last few years, so any finance you took out in the past may not be the ideal solution for you anymore. Furthermore, if you have experienced a period of revenue growth, then you might qualify for better terms. You may also discover that you can fund those planned renovation works by releasing capital by refinancing onto a different type of commercial mortgage.
The possibilities really are endless, but making the right choice requires expert knowledge and insight. Don’t try to refinance without speaking to an expert finance broker like Rangewell. We work with hotel owners to find and secure finance from the whole of market, including specialist hospitality lenders, so we are well-placed to support any refinancing you might be considering for your business.
Types of hotel finance
The type of hotel finance you need depends on a number of factors, including your previous track record, current financial situation and future plans. The finance offered to an experienced hotel developer looking to add a new wing to an existing business will be different to that offered to a first-time developer. Equally, if you already have finance then we recommend getting in touch so we can look at your capital stack as a whole and work out the best plan of action for you.
With that in mind, here are some of the most common types of hotel finance that you might come across:
As we already discussed, most hoteliers will have a commercial mortgage that covers the land or hotel purchase that makes up a large percentage of the capital stack and is to be repaid over a long period of time.
We’ve already mentioned the value of bridging finance earlier in this guide. As the name suggests, a bridge loan is designed to bridge a gap in your funding, rather than as a long term investment strategy. Common uses for a bridging loan include the purchase of a property at auction or boosting cash flow while awaiting a larger, longer-term investment.
Asset and equipment finance
Even small hotels will have assets and equipment that holds value, such as computers and kitchen appliances. Purchasing assets for your hotel can be costly, especially if you find you need to refurbish a whole kitchen or buy matching furniture for several rooms. If you need support buying assets, then this type of finance might be right for you.
Paying annual tax bills and quarterly VAT returns puts strain on seasonal businesses like hotels as often the demand for cash comes during a quiet time for business. You can take control of your cash flow and spread the cost out over monthly payments with tax loans.
Merchant cash advance
Another great solution for hotel businesses that need a cash flow boost is merchant cash advance, which allows companies to repay loans via a small percentage of every customer debit or credit card payment. So, you are only repaying the finance when you can afford to do so, and you’ll also not have to worry about separating the income as it’s an automatic process carried out via your card payment services.
Since hotels are complex businesses, it’s likely that you will need to combine multiple types of finance to meet your needs. Jigsaw funding is a term that covers the combination of several types of funding that all fit together towards a common goal: the success of your business. Traditional lenders may not offer this service, as their business is typically focused on providing large sums like commercial mortgages to established businesses.
So, if you are considering remortgaging but also need to acquire new computers for your hotel reception, then this is where jigsaw funding can help.
As with any type of specialised finance, jigsaw funding should be assembled by an expert advisor who can identify your requirements and help you source the optimum funding on the best possible terms. It’s not just about how much you can lend, but also how long for and the interest rates you are offered. Fortunately, Rangewell can help you with all of that and more, so get in touch today to take ownership of your hotel finance and get funding for your hotel.