Financing a hotel can be complicated. Whether you're fixing up an old one, buying a new one, or building a new one, you need to make sure you have a good plan. To make your project work, you will need to be able to pay the mortgage and any construction loans until the hotel starts making money.
Before trying to get financing for a hotel, a business plan that works needs to be made. A good business plan should cover everything about your business, from building it to paying off the loans and, if possible, for a few years after that. If you can't show that the hotel can trade and make money without having to take out more loans, it will probably be very hard for you to get financing.
Any business partners you have will want to know that their money is safe and that if something goes wrong, you have a plan that includes more than just selling the property to make up for any losses. In other words, you can't have a plan that says you'll sell the building and give them their money back if something goes wrong and you can't make the payments.
Your initial investment can help a lot.
How easy it is to get financing for a hotel can depend on how much of an initial investment you can make. If you can start with, say, 25% of the total cost of the project, it should be easy to come up with the other 75%. Keep in mind that your investment will go toward building costs, and that most of your first earnings from running the business will go toward the other 75% of costs. You will still need money to run your business and pay for things like franchise fees and advertising.
For example, if you want to build a $30 million hotel and plan to finance it with a loan, the total cost of building it could be more than $35 million when you add in interest over the life of the loan. You will need to take this into account in your plan, as well as the effect that a rise in interest rates could have. One way to do this is to look at how interest rates have changed over a similar amount of time. For example, if your loan is for 10 years, you could look at how much interest rates have gone up over the past 10 years. Potential investors will be more likely to give you money if you have a good plan that takes these things into account.
