8 Tips for Financing Your Hotel Construction Project

 Kevin Brown
  Jan 21, 2019

Do you have a hotel construction idea in your head? Here are a few tips for financing it.

Finance

Deciding to build a hotel is a huge choice to make.

After all, there is a lot that must be considered: hotel construction, costs, financing decisions, construction contractors, and everything else.

How can you make sure that you are doing things effectively and efficiently without wasting time or money?

Keep reading to get 8 tips for financing your hotel construction project.

1. Compile an Executive Summary

It is a lot easier to understand what you need when it is all in one spot.

As a lender, it can be difficult to understand all of the information that goes into a project. Putting together a summary to help them figure out the high points and the parts that are most important is a simple way to help the confusion.

This summary should have everything in it that is important. This includes an overview of the whole hotel project, the background and expertise of the sponsor, and the track record so far.

2. Be Prepared, But Flexible

A lot of lenders will want you to have a franchise letter and make sure that the terms of the loan that you choose to match this letter. This is why you have to be ready for financing and getting the right documentation from the beginning.

It makes the process easier later on when you are prepared at the start.

Not all lenders can offer the same deals, so you have to be flexible. You also need to be sure that you are the financing package you choose has benefits that you can use rather than benefits that won't really help you.

Finding flexible payment options is also a great idea. If you are able to secure this with your lender, it can pay off in the long run.

3. Consider the Lender's Experience

When you are looking at potential lenders, you will want to look at rates and terms, but that's not all! You need to know that your lender has been able to close deals before.

There are a lot of lenders and banks out there, as well as others, that may try to convince you that they can do a lot of things they can't. This is going to be a lifelong relationship with this person if all goes well, so you need to know that the financing has experience backing it up.

You should know about the number of deals that the lender has closed and what their financing looks like. Any lender should at least be able to show you something from the past few years.

4. Not All Lenders Are Equal

As stated earlier, experience in your lender is very important. You also want to remember that not all of the lenders are the same.

Different lenders exist for different size projects. For a hotel project, you'll likely want a lender that is a little different than you would for a personal home. In some scenarios, having a good guarantor as part of the process may make everyone feel more secure.

This is another situation in which you need a lender that can offer experience. This especially is true when you don't have any experience yourself.

5. Have a Good Plan in Place

This should be obvious, but knowing what you are planning to do and how it will be done is absolutely crucial in the beginning steps of getting hotel construction financing.

No lender is going to want to give you money if you can't show them that you have a plan. As stated previously, an executive summary is a great place to do this, but you can also do it in more creative terms if you are more comfortable.

Make sure that the lender is in complete understanding of what you are saying when you present this idea. They need to know what the hotel actually will be when it is completed in order to increase your chances of getting a loan.

6. Understand Different Types of Loans

There are a few different types of loans out there, so you have to figure out what is going to work for you.

Work with a lender that is going to be able to know what you need and why you need it. Your lenders will need to know more about you, like your past financial history and figure out which type of plan is going to be the best fit.

There are four main types of loans that you can get for a hotel. These are SBA 504 loans, SBA 7a loans, USDA B & I loans, and traditional bank loans.

Not all of these work for every person and your lender should be able to help you understand what the differences or similarities are between them.

7. Know the Surrounding Market

Having the competitive set will show you the local market and what types of trends are emerging.

This information can then be used to determine how your hotel construction project is actually going to end up playing out. Market fluctuations can impact the performance of your property and location or demand can be just as important.

Knowing information about local tourism and other aspects of the market will help lenders see how the projects will perform and will help you as a borrower know what to expect from the project.

8. Understand What You Still Need

When it is all said and done, you may still have things that you need to have accomplished. Eventually, it could be that you need to refinance. You might need to get more money and take out another loan.

Knowing the loan terms that you have and what works best for your type of project can help you predict what you may need in the future. Financial obligations and what your budget entails are also great indicators.

Pay attention to interest rates and projected income within the coming years.

Hotel Construction Financing Decisions

Anyone getting involved in hotel construction and trying to secure a loan knows that it may be difficult road. If it wasn't, everyone would want to do it.

However, choosing a lender that knows what they are doing and getting a loan that meets your needs will help you along the way.

If you are interested in getting a little more insight into building this hotel business, visit our business page and browse our articles to see what you can find.

8 Tips for Financing Your Hotel Construction Project

Kevin Brown

Darren Wilson working as Outreach specialist who loves to read and travel. He wrote on various topics on various blogs irrespective of their sizes. His strong educational background and family support have been a broad base to research and write on various topics. Reading by night and writing by day keep him updated about the field that working on.

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