The hotel industry is a difficult one to break into, and even more difficult to maintain once it’s been established. It is important when seeking hotel financing that you pick a property that works extremely well within your budget, as opposed to pushing the envelope with asking prices that may or may not pay off in the long run. Remember that no matter how favorable your estimates appear, or how little competition you may have, or how wonderful all of your feasibility studies look, your bank or other lender is going to always going to take a more skeptical view on whether or not to approve your loan. This is for your protection, as well as for theirs.
One of the most important questions to ask the owner of any existing hotel property that he or she is looking to sell is—why are they choosing to sell now? If you are particularly good at picking up on body language and facial movements, you may be able to analyze whether the owner is simply ready to retire, wants the cash for other projects, or is sinking financially underwater and needs to cut the cord before it’s too late. Proper analysis of the situation can be used as negotiating leverage later.
When preparing to obtain hotel financing, there are a few things to keep in mind. First off, if you have not prepared a thorough and professional business plan—not a template, or a computer-generated simplistic plan, but a real plan—you should stop what you are doing and create one. This plan will not only help guide you later on in helping you remember your primary goals, but it will also show any potential lenders that you are serious about the project. If you are a first-time entrepreneur, it is absolutely critical that you develop your business plan very early on into the project.
Second, you should be able to come to your hotel financing lender and show them exactly what kind of renovations or demolition need to be done, and have approximate figures from a contractor estimating what the timeframe and costs involved will be for everything. Lenders often prefer to fund projects where an experienced, reputable professional contractor has already priced everything out. This is opposed to using a square foot mathematical equation to ballpark how much repairs should cost
Finally, if you have any additional income streams, don’t forget to mention them to your hotel financing lender. Lenders look upon additional sources of borrower revenue, including additional business incomes or additional salaries, very favorably. This is because it spreads the financial risk of the project onto more than one set of shoulders.
Read more about Prime Commercial Lending’s Commercial Real-Estate Financing & Hotel Financing Programs.