According to Statista, the U.S. Lodging industry reached an all-time high of $208 billion in 2017, up almost 95% from the year 2001. Since 2001 the Lodging Industry has experienced on one year-over-year decline in revue growth. And while the Lodging Industry has experienced periods of flat (and declining) growth based on economic trends; the long-term trends show a resilient and robust pattern of growth and expansion.
In addition to fueling American economic growth, hotels, motels, and other lodging industries have offered the highest rates of debt repayment compared to other types of commercial real estate. If you're looking for hotel financing, you will find a wealth of data on this page to support your research on applying for a hotel loan.
Understanding the Hotel Loan Marketplace: Do Your Homework
Purchasing a hotel or motel is similar to other types of business loans in many ways. However, the business of operating a hotel can be complex and requires a wealth of experience and training. For smaller hotel and motel owners the business is usually a labor of love, a family-run operation or a retirement plan, such as an inn, motel or a bed and breakfast. And in these cases many owners are single facility purveyors (own only one hotel or motel). While the industry is thriving it is important that prospective borrowers follow some basic steps to prepare for getting a hotel loan. These include: (at a minimum) preparing the business plan, doing a competitive analysis and a market study. Loans and loan terms are somewhat discretionary and being properly prepared may tip the balance in approval, rates and terms. It is important to make the right decisions and secure your hotel loan on the right terms; there is little room for error for smaller operators.
Securing a hotel loan requires a lot of preparation. Consideration of land or building purchase, staffing, insurance, licensing and marketing are all key issues (and cost centers)that can mean the difference between success and failure.
Market Research & Hotel Location
Location is the single biggest factor to consider when either researching your hotel purchase or looking to finance an existing property. More specifically, the location of your hotel or motel will determine who your target customers will be. If you acquire a property in a major city, you will likely attract a mix of business and tourist clientele. If you are looking at a remote location near the beach or in the mountains, you are likely to attract family vacationers; that's a pretty simple concept, right? However, the marketing and staffing implications may be completely different.
Experts suggest looking at location from a broader perspective first to understand the dynamic of the marketplace. Things to consider when researching locations for a tourist/sightseeing venue are: the proximity to major attractions, accessibility to the location and competition. For business-oriented locations, you'll want to consider local travel patterns, proximity to transit hubs, convention centers or possibly even whether your property has meeting space to offer as well.
Doing your research may be a bit simpler than you may imagine. Today, logging-on to major travel search sites can help you identify how certain properties and locations are doing in your target market.
Build Versus Buy: Using Your Hotel Financing Wisely
Many prospective hotel owners will look to buy an existing facility as opposed to building one from scratch. In many cases this will be the logical option. However, consider that your hotel loan may just be the better option to build versus buying an existing property. Hotel financing through the Small Business Administration (SBA) and a local Certified Development Company (CDC) 504 Loan program may be an ideal option for this type of plan. We'll discuss financing options in more detail below.
New hotel construction may be particularly wise (but very expensive) when you can identify population growth areas that are presently underserviced by the existing lodging facilities and where existing occupancy rates are higher than national or regional averages. An alternative to new construction may involve an acquisition of an existing facility that you will modernize and/or expand; in this case an SBA/CDC 504 hotel loan may be ideal.
With destination-area hotels (vacation destinations), keep in mind that stay durations continue to climb and hotel owners need to consider what these extended stays mean for your guests. Perhaps laundry facilities, a business center with computers and Wi-Fi. Anticipating and catering to your guests' needs is the essence of the hotel business.
Adding certain amenities to an existing facility may be more cost effective and allow you to increase your room rates considerably. Amenities such as: a gym, courtesy transportation vehicles, indoor or outdoor swimming pools, saunas, hot tubs and outdoor decks are attractive to visitors and may give your facility an edge over the competition. Keep in mind that adding amenities involves maintenance costs in addition to the initial costs, so you'll also need to have financing in place for those recurring expenses.
Carefully planning your facilities offerings and amenities, and reviewing operational costs will help you to write your business plan efficiently and accurately. A solid business plan will also give you a clear understanding of your hotel financing requirements as well as your ongoing operational profit and loss profile. In order to secure your hotel loan, you will need to show that you can repay the financing from the revenue of the business.