Hotels and motels provide an important service, but the demand for that service is cyclical in nature. Businesses that have significant downturns or low seasons face extra challenges when it comes to securing funding for start-up capital or to ensure growth. Traditional bank lenders see the fluctuations of the tourism industry as a risky investment and often turn down hotel and motel loan applications. Traditional bank loans are also inflexible in their repayment plans and carry large interest charges that can break a business. Luckily, there are other financing options like securing a merchant cash advance.
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The Tourism Industry
Hotels, motels and lodging accommodations are the bread and butter of the tourism industry. Anyone in the industry knows that the high season has to be successful enough to carry them through the low season and make up for those significant revenue slumps. Whether it is a summer resort or a winter ski chalet, having a successful season that’s dependent upon the weather and uncontrollable environmental factors is a risky prospect; this is why traditional bank loans are difficult to secure and challenging to repay.
How Banks View Hotels and Motels
When banks review loan applications, risk assessment is a large part of the process. They look at the chosen industry and analyze its success or challenges. As the tourism industry has such drastic fluctuations between high and low seasons and is governed by uncontrollable factors like the weather, loan applications for hotels and motels can be difficult to secure as they are considered high risk.
Why Hotels and Motels Need Funding
Every business, whether large or small, needs start-up capital to succeed, and most businesses will need additional funding at some point in their journey to facilitate growth and enable competitiveness in their chosen niche. The success of the tourism industry is based upon the level of customer satisfaction and comfort customers experience. As any business grows, they need to expand, often in the form of adding locations, remodeling, marketing campaigns, or technological advancements.
Hotels and motels need to have the space to accommodate their lodgers. If a location’s demand has outgrown its lodging capability, that business is missing out on potential revenue. This is often the time that a hotel business will seek out alternative financing to secure growth. For locations that are experiencing a high revenue stream, adding another location is a goal of many businesses and a milestone of ultimate success; however, this is an expensive prospect and also involves securing capital to enable that expansion.
Remodeling and Renovations
As people seek out hotels and motels that meet and exceed their comfort expectations, remodeling and renovating to stay up to date is a means to the end of attracting current and returning guests. Renovations are also sometimes necessary to ensure that buildings are in adherence to changing building and safety codes. Part of staying competitive in any industry involves keeping up with the times, and décor is definitely one of those ever-evolving trends.
In today’s digital age, the importance of implementing a digital marketing strategy for your business to ensure success is essential. Establishing an effective marketing strategy involves website design and needs to work across a number of social media platforms. Any business these days needs to have a positive online presence to stay competitive, and hiring a digital marketing expert is another valuable investment in future business success that can require funding.
Technology is constantly evolving to reflect the needs and expectations of the public in any industry. Hotels and motels see this in the expectations of their guests. Nowadays, guests expect free WiFi, state-of-the-art gyms, swimming pools, an efficient online booking system and an informative and attractive website. Keeping up to date with the technological demands in any given industry enables businesses to stay competitive, rather than be left behind.
Possible Funding Solutions for Hotels
We’ve all heard how it takes money to make money, and when a hotel is at that point where they need to invest in their business to enable growth, there are a number of financing options available to them.
The problem with traditional bank loans is that they are known to make their clients jump through a number of hoops. They are also less likely than other lenders to invest in an industry that is not 100-percent reliable, like the tourism industry. Additionally, their loan repayment demands can be inflexible, carry high interest charges, and don’t take into account the cyclical nature of the tourism industry.
Lines of Credit
Lines of credit can be a potential solution for those in the tourism industry who have short-term funding needs. Most often, lines of credit do not need any collateral, but they also do not generally offer repayment over long periods. While lines of credit are advantageous due to their low interest rates, the credit line repayment often needs to happen over shorter timeframes.
Alternative Funding Solutions: Merchant Cash Advance
Funding companies that provide merchant cash advance loans have made it their business to help businesses succeed and grow. Merchant cash advance loans are known for their simple and efficient application process, flexible repayment plans, and customizable funding options. This alternative funding type is based on providing a level of service that benefits both the merchant cash advance company and the businesses requiring financing. Merchant cash advance companies have representatives that work with the business throughout their application and approval process to ensure that elements like high and low seasons are taken into account when it comes to customizing the repayment plan. Repayment schedules can be calculated based on a hotel’s sales volume at various times throughout the season, making merchant cash advance loans an ideal way to meet the unique funding needs of the hospitality business.
When it comes time to grow your hotel or motel business, don’t be discouraged by the challenges of securing financing. The formation of funding companies that provide businesses with merchant cash advances take the financing power out of the hands of banks and put it back in the hands of entrepreneurs and business owners.