Even profitable small businesses can experience seasonal fluctuations and shortfalls in cash and resources. That’s where a short term business loan can come in handy. A short term loan offers a quick boost of financial support. And now, with the growing popularity of alternative lenders, there are more options than ever to get the capital you need to keep growing.Running your own hospitality business can be challenging, not to mention expensive. From purchasing additional equipment and paying staff wages, to ensuring you’re effectively marketing your company to attract new customers; success certainly comes at a cost.
In fact, 52% of hospitality business owners say increasing operating costs are one of the biggest issues they face, while 55% admit that increased competition has been one of their top reasons for revenue loss within the past year.
So, how do you help your hospitality business to not only survive, but thrive? The answer lies within the quick injection of cash that a hospitality business loan can offer. Keep reading to find out more!
There are four main sectors of the hospitality industry, including:
Food and beverage
Travel and tourism
If your business is part of the food and beverage, lodging, recreation, or travel and tourism sectors, then you may benefit from the increase in working capital that a hospitality industry loan provides.
If you’re considering a hospitality business loan, then you’re certainly in the right place. There are numerous financing options available to businesses within the hospitality sector, including the following:
Unsecured Business Loans
These loans are called ‘unsecured’ because they don’t require you to put up collateral (a valuable asset you own) to get approval. Instead, many alternative lenders ask for a personal guarantee from the directors of the business. With unsecured loans, a less-than-perfect credit history is okay. Additionally, they have a quick application and approval process, often within the same day. (Read more)
Secured Business Loans
Unlike unsecured business loans, a secured loan is supported by a form of collateral (such as property, vehicles, etc.). This is your way of promising to repay the loan, as the collateral can be used or sold to the lender in the event that you default on the loan. Secured loans aren’t for everyone, but they do allow you to take out a larger loan and repay it over a longer period of time.(Read more)
Long Term Business Loans
Just as the name suggests, a long term business loan is an amount that is paid off over a longer period of time than short-term or unsecured loans. Payment terms range from at least 12 months to up to 30 years. Therefore, business owners seeking long-term finance can usually borrow a greater amount - often anywhere from $500,000 to $50,000,000.(Read more)
Short Term Business Loans
Unlike long term loans, short term business loans have repayment terms which usually range from 3 to 18 months. If the short term loan is unsecured, the borrowing capacity is often lower, spanning anywhere from $5,000 to $500,000.(Read more)
Business Line of Credit
When you have a business line of credit, you can borrow a certain amount of capital annually, just as with personal credit. You make payments only on the credit you've actually used, helping you to manage cash flow shortages or cover surprise costs until you have the funds. The amount you can borrow is typically based on accounts receivable and current inventory, but is usually less than $500,000.(Read more)
Invoice financing allows businesses to borrow money from a lender based on the amount of money due from customers through unpaid invoices. Businesses can use money owed to them as a loan asset, enabling them to get paid for outstanding invoices right away. The total loan amount depends on the amount owed to your business and the creditworthiness of your customers.(Read more)
With equipment financing, you can use existing equipment or the equipment you want to purchase as collateral. The loan amount and terms are dictated by the price of the equipment. Once you’ve made all of your payments, the equipment is yours to keep.(Read more)
Merchant Cash Advance
A merchant cash advance is designed for retailers receiving a high proportion of payments via credit card or EFTPOS, such as cafés, restaurants, and other businesses within the hospitality sector. A lender purchases a business’s future cash flow, so future transactions are used to repay the borrowed funds, in addition to a fee charged by the lender for the loan product.(Read more)
Although it can also be secured or unsecured, a business overdraft differs from a traditional loan. It can be explained as a line of credit that becomes available when you make any withdrawal for an amount greater than the balance in your business debit account. In other words, you can continue making withdrawals even if your account is empty.(Read more)
Business Credit Card
A business credit card is also another type of hospitality business loan available to you. Just like a personal credit card, it offers credit up to a set limit, has regular costs (such as an annual fee and interest charges), and needs to be paid off over time. One important difference between the two is the fact that a business credit card must be used solely for business-related expenses.(Read more)
Microloans were first invented to give impoverished people a helping hand by offering small loans, but they’ve since become a popular financing option for businesses all over the world, especially new businesses or start-ups. A business microloan is essentially a small loan, ranging anywhere from $100 up to around $50,000.(Read more)
Now that you know a little more about each hospitality business loan type, it’s time to focus on comparing loans to see which one is best for you. Before making your decision, take these elements into consideration first:
Your chosen business loan interest rate will largely determine the amount of your repayments. Is it higher or lower than other types of hospitality loans? Is it a fixed interest rate or a variable interest rate? You’ll want to know all of this before you sign on the dotted line.
Like many big business decisions, loans can also carry risks - some greater than others. Does your loan require you to use a valuable asset as collateral (such as a secured loan), or is collateral not needed (in the case of an unsecured loan)? What are the consequences to your company (or livelihood) if you’re unable to meet your repayments?
The terms and conditions of your loan are incredibly important, so ensure you have a complete understanding of these before your application is made. If there’s business loan jargon you’re unsure of, make sure you consult the lender (or another trusted financial worker) for clarification.
Fees and charges
Did you know at Lumi, we pride ourselves on offering totally transparent loans that contain no hidden fees or charges? Unfortunately, not all lenders are the same, so be sure that you’re aware of any additional fees or charges before you sign off on your loan. Remember, any payments you didn’t initially factor into your loan can dramatically increase the total amount you have to repay.
How often do you have to repay your loan - weekly, fortnightly, or monthly - and how much will your repayments be? Some loans don’t contain regular repayment schedules (such as a merchant cash advance), so it’s best that you’re aware of this.
There are also a number of factors regarding your own business that you’ll need to take into account before you decide which hospitality business loan is right for you. We recommend you think about the following:
If you’re finding it increasingly hard to be a hospitality business owner, then you’re not alone. A recent study found that nearly three quarters of the hospitality industry found competition has increased in the last 12 months, with over half admitting this was the top reason for losing revenue over this period.
Other issues facing hospitality business owners right now include:
An increase in working capital from a business loan could mean the difference between falling prey to these issues, or rising above them.
We might have listed a few benefits of hospitality business loans already, but here’s a few more!
10 ways a hospitality business loan can be used to help you:
How do you plan on using the funds from your hospitality business loan?
Getting a hospitality business loan can depend on many factors, but there are some things you can do to increase your chances of a successful application. We’ve listed our top 5 tips below!
There are 8 crucial components to a successful hospitality business plan. These include:
Check out our in-depth guide on How to Write an Effective Business Plan for more information.
These days, you don’t have to jump through hoops to apply for a hospitality business loan, nor should you have to wait weeks just to receive your approved funds. Alternative lenders such as Lumi allow you to apply for a small business loan online if you meet the following requirements:
Hospitality business owners love our additional business loan benefits, including the fact that we don’t charge early repayment fees, plus you can have your approved funds deposited into your nominated bank account the very same business day.
To apply for a hospitality business loan online, visit the Lumi website. You’ll just need the following on-hand to complete your application:
You can even link-up your cloud accounting software to complete the application, or we also accept your accounting statements as PDFs. If we require additional accounting information, one of our team members will be in touch.
Q: Is it better to borrow from an alternative lender or a bank?
A: This will generally depend on your lender’s loan requirements, but often, they will prefer that your business has been operating for some time before providing you with finance. At Lumi, for example, we ask that a business has been in operation for at least 6 months before they request a loan.
Q: My hospitality business has only been running for a few months. Can I still get a hospitality business loan?
A: This will come down to your individual business needs. Alternative lenders and banks differ in some ways, particularly their requirements and application process. Usually, a bank will want their business loans to be secured by a valuable asset you own (collateral), whereas alternative lenders such as Lumi don’t require this.
Additionally, alternative lenders tend to have a much simpler and faster application process. You can just apply online within minutes, receive a lending decision in less than two hours, and have your approved funds deposited on the same business day. Banks, on the other hand, can take 3-4 weeks to approve your application and provide you with your funds.
Q: Does it cost anything to apply for a hospitality business loan?
A: We’ve also written some additional guides for business owners just like you, which you can find below.
Want to find out more information about Lumi’s hospitality business loans? Visit our website or call 13 LUMI today.