Starting a travel business can be a challenge, and there are a lot of decisions to make. As with any business launch, how you finance your new travel company will dictate much of your future profits. Finding the right loan source is vital, and the good news is that for the majority of travel companies, there are a variety of options to choose from when it comes to finding the right financing for you. Getting the right loan can take time and research, but by finding the most suitable option, you could be saving yourself both money and stress in the long run. Here’s what you need to know.
Do you need a loan?
One of the first things to consider is whether or not you actually need a fresh injection of cash in order to get your business up and running. The modern entrepreneur has many options for raising money, but the choice to bootstrap your travel company could be the best route if you have the personal money available to you. It can force you to keep tighter control over your spending, and will also mean that you personally are forced to become an expert in every area of your new business. Before you start looking at how to apply for a small business loan, consider whether the money that you have in your savings account will get you through the initial launch.
Business Financing Options
If you decide that bootstrapping is either not possible or too risky, then you’ll start looking at your options. There are many to choose from, but these are the most useful for those in the travel sector.
Short Term Loans
These are among the most popular forms of loan for businesses to look at first. They work by giving you a set amount of money that you then pay back over a designated amount of time. There are no size requirements to short term loans, and large corporations and small business alike can benefit. Short term loans have the least amount of conditions, making them easier to apply for and be approved. However, they can be expensive. Lenders are going to have to take a gamble on whether you can pay back what you have borrowed, and as a result, the interest rates can be high. Generally, you will agree to pay back your loan somewhere between 3 and 18 months, with interest rates of around 14%. These can be much higher if you have bad credit, but they remain a popular option.
Unlike loans from banks and financial institutions, an SBA loan is managed through a branch of the government. Small Business Administration (SBA) loans do not come directly through the government, though. Instead, they help you to get approval for a bigger loan than you would otherwise be qualified for. The Federal government then acts as a guarantor, so that if you do default on your loan, then the actual lender can recoup their losses. The only real problem with an SBA loan is that you will have to fill out a lot of paperwork, and it can take several months for you to actually receive the money that you need to launch your travel company. However, with more substantial loan amounts possible and up to 25 years to pay them back, they could see you start your travel company with a lot more confidence in your future.
Setting up a business will require purchasing equipment, and the travel sector is no different. If you only need a loan to cover those company acquisitions, then you may be able to get away with a much simpler equipment financing option. These are also known as asset-based loans, and it is the equipment itself that is the guarantee of your loan. This is a positive because it means that lenders will be less concerned with your credit score and more concerned with the value of the equipment and the profits that you will be able to generate by using that equipment. Another positive to equipment financing for a travel company is that the duration of the loan will also be the expected lifespan of that equipment. So a printer that will last you ten years will not have to be paid back before that ten years’ is over. When it is over, you will have paid back your loan, and the equipment then belongs to you entirely. Equipment financing is a positive alternative to equipment leasing.
This is an option to consider if you’re wary of borrowing money. Equity financing is when you receive money from an investor (either a business or private individual), and rather than paying that money back, you instead hand over a percentage of your business. This is an investment option for many, and you will have to weigh up whether you want to lose 100% control over your future. If you’re interested in equity financing, then you can find sources through:
- Angel Investors – Private individuals looking for promising investment opportunities
- A venture capital firm – Companies that specialize in investing in new businesses
- Family and friends – This can be a useful way of raising money but without losing control
Equity financing is not for everyone, but it is a useful option to consider if your travel company is in need of either money or expert advice.
Alternative Financing Options
If you’re skeptical about getting a loan for your travel company launch, and you don’t want to give up control of your business, then you could look at these alternatives.
- Crowdfunding: Now a very popular way of raising funds for a business there are a variety of crowdfunding platforms that are perfect for raising both money and awareness when it comes to your launch. Crowdfunding can take time though, and there’s no guarantee that you’ll raise the necessary money
- 401(k) Financing: This is not an option to be considered lightly. By dipping into your 401(k) retirement savings, you can certainly get the money that you need for your business launch, but you may be doing so at the expense of future you. If you’re ready to take the risk, then talk to a tax attorney before you commit, as they can help you understand the risks and ensure that you make the best decision.
Travel companies are growing, and now is promising to be a good time for the entrepreneur to branch out into this promising sector. Make sure that you understand the complexities of your financing options, and you could be up and trading before you know it.