Investing in a commercial property is a major undertaking, and when it comes to buying a hotel, you will need to put in a lot of effort, time, and of course, a heap of money. If you manage to put everything in place, owning a hotel can prove to be an incredibly lucrative opportunity. However, in this competitive industry, it is crucial to get access to quick financing. Whether you are an existing hotelier, or new to this industry, bridging loans can help you reach new heights.
How Bridging Finance Can Help Hotels?
We will look at how hotels can leverage bridging finance by going through an example. A medium-sized hotel has been operating for a few years and looking to expand its operations. The hotel is situated in a building that has several other businesses. One of them is facing financial difficulty and looking to sell their site at a bargain price to pay for their outstanding bill.
Even though they have been offered at a discount price, the hotel doesn’t have enough money on hand to purchase the site. It would at least take a year to raise the capital to purchase the property. If they can act quickly, this is a great opportunity for them to expand their current property at a budget price.
This is where bridging loans can help. Given the speedy nature of the bridging loans, the hotel owner can quickly complete the property purchase, ideally within 7 to 10 days, compared to other forms of loan.
When Hotels Can Use Bridging Loans
There are many instances when a hotel can take out a bridging loan. The most common ones are:
Renovating or expanding the existing hotel
Bridging loans can provide you with the required funds when you need it the most. Even if you already own a hotel and wish to expand or refurbish it, it requires sizeable capital. Moreover, you need to act quickly to keep up with the growing demands and should be carried out before the peak season begins. Using a bridging loan, you can quickly refurbish or expand your space, and once the busy period is over, you will have enough profits to repay the loan. Or, if the investment is large, you can re-mortgage commercial property once the work is completed.
Hotel chain breaks
When buying a hotel, you could be in the buyer’s chain, being dependent on the buyers and sellers to complete the purchase before you can. If you, unfortunately, get involved in the chain break and wish to come out, bridging finance in London can help you. You can use bridging finance on your existing property and can complete a property purchase if the chain breaks and you are unable to sell the existing property to complete the purchase of the new property. A bridging loan can be arranged in as little as a few days to ensure you can complete the property purchase on time.
Adding hotels to the investment portfolio
If you are a well-established hotel operator and wish to set up branches on new locations, particularly a property in the location that can give you a competitive edge, then a bridging loan can prove to be extremely useful. You can raise a large sum of money required to set up your new hotel, and once it is completed, you can re-finance it to the commercial mortgage.
Buying new equipment and other payouts
Business cash flow problems are common, and the hotel industry is no exception. Investment in new technology, paying outstanding invoices and staff wages when the income is low can disrupt the day-to-day business operations. In such situations, this kind of finance is just right to bridge the business funding gap as long as you have adequate assets to put as collateral and provide evidence about how you will repay the loan.
What are the Eligibility Criteria for Bridging Loans for Hotels?
Every bridging loan lender has their own set of rules and criteria for lending money. However, these are some common criteria that a number of lenders will look for:
Experience in the industry – You will have higher chances of getting your application approved if you have a proven record within the hotel industry.
Assets you put as security – The stronger the assets you put as security, the higher the chances of approval.
Exit strategy – Most lenders would want to know how you will repay the loan. So, the stronger the exit strategy, the greater the chances of approval.
Credit score – It is not essential to have an impeccable credit score, but a poor credit score can reduce the choices of lenders and prevent you from getting the best rates.
Deposit – As with any financial product, the bigger the deposit, the lower the risk for the lender and the more competitive the rates. Usually, a minimum of 30% is required, but anything above can be considered a major bonus.
How Much You Can Borrow with a Bridging Loan for Hotel?
There is no fixed amount that you can or can’t borrow through bridging finance. Most lenders will assess the level of risks, your exit strategy, loan duration and how you wish to use the money before lending. However, the Loan to Value on most loans is around 70 to 75%.
If you are a reputed hotel owner with a proven track record and great property portfolio, then you may be able to raise even more money, provided you put adequate assets as security. However, you do need to be mindful while taking a bridging loan because if you fail to repay the loan, your hotel properties are at risk of repossession.
Although running a hotel is an expensive outlay, your bank balance should not affect your passion or ideas. That is when bridging finance can help you turn your dreams into reality. If you are looking to get a bridging loan for your hotel business, then our advisors are readily available to help you find the best rate on a bridging loan as well as go through the application process smoothly. Click to Blog