How to Secure Financing for Your New Hospitality Business

​Whether you're part of the Great Resignation or you've been planning a new hospitality business for some time, it's a chance to be your own boss. The hospitality industry can be very rewarding work if you've gotten tired of endless lines of retail consumers or countless hours staring at computer screens in an office. However, it can also be a very profitable industry for those who succeed at it. Securing the right financing to start your new hospitality business is a great first step.

Different Ways to Secure Hospitality Business Financing

NerdWallet has a great breakdown of how to secure financing for a new hospitality business.
The first thing you should know is what lenders look for. Specific factors include:

1. Branding
2. Cash flow
3. Debt service coverage ratio
4. Debt yield
5. Loan to value ratio
6. Net operating income
7. Revenue per available unit

Securing actual financing for your hospitality business can fall along one or more particular pathways:

1. A Business Line of Credit: A revolving line of credit is something you can tap into as needed and pay down as able so you can use it again.
2. A Commercial Real Estate Loan: These are available through traditional lenders, but they can also be hard money loans or come from crowdfunding.
3. Equipment Financing: Use this to make physical items from furniture, fixtures, and other equipment into their own collateral.
4. A Hotel Bridge Loan: These short-term loans let you take advantage of time-sensitive opportunities when they arise.
5. Invoice Financing: This can be hard for a new business since it borrows outstanding invoices you may not yet be generating.
6. Owner Financing: If you are buying your new hospitality business from a previous owner, they might be able to finance part or all of the sale.
7. An SBA 504/CDC Loan: The Small Business Administration guarantees such loans from 50% up to 80%, which makes lenders more likely to approve them.
8. An SBA 7(a) Loan: These working capital loans cover a wider variety of costs and prove more popular.

Get Ahead

If you want to get ahead in your industry, then hospitality loans catered toward your financial success are one way to secure the funding you need now. Fortunately, they're not as difficult to navigate as you might think.

For starters, you probably won't need perfect credit, nor will you likely need to put down collateral. Many hospitality businesses can use themselves as collateral so you don't have to risk your personal home or possessions.
Of course, if you need financing to start a hospitality business in the first place, then you might not be able to use it as collateral. Still, professional lenders are helpful and willing to work with those determined to succeed. You can usually get hospitality business financing fairly quickly.

Using Your Financing Wisely

Financing a new hospitality business helps you fund your operations, but you also need to have a good idea of what to do with the funds once you secure them. Here are three good answers lenders might be looking to hear since they want to lend to someone who has a plan:
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1. Franchising: Just because you're a new business doesn't mean you can't hop on the bandwagon of an existing brand.
2. Renovations: Sometimes, the best way to start a new hospitality business is to buy an existing location and renovate it with your own style and touch, or just modernize it.
3. Marketing: Opening a new hospitality business does no good if no one knows about you. Marketing and advertising are essential to getting any customers to come to you in the first place.

Enjoy What You Do

When the financing for your new hospitality business is secure, be sure you make sure to enjoy your work. Service, atmosphere, and mood are crucial to any hospitality business. When you are happy and even radiant, it inspires similar vibes in your overall staff. Most importantly, your clientele will notice and appreciate it and keep coming back for more.