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!
Sectors of the Hospitality Industry
There are four main sectors of the hospitality industry, including:
Food and beverage
- Fast food
- Bed and Breakfast
- Zoos etc.
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.
Types of Hospitality Business Loans
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 $300,000 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 $300,000.(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 $300,000.(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)
How to Compare the Best Hospitality Business Loans
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.
Factors to Take Into Consideration Before Applying for a Hospitality Industry Loan
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:
- Your financial needs
Are you hiring extra staff or moving to a new location? Or perhaps you’re struggling to keep up with your daily business expenses? Whatever your reason for a loan, it’s important you hone-in on this as much as possible to determine how you will use the acquired funds, as well as how much cash you’ll actually need.
- Your credit history
Do you know your credit score? If you answered no, then you’re not alone, as a large portion of people will never worry about their credit rating until they need to apply for a loan. You can check your credit score for free once per year through Equifax Australia .
- Your assets
For those without valuable assets (or who wish to apply for a collateral-free loan), an unsecured business loan may be your best option. If you want to apply for a secured loan though, then you’ll need to assess your assets first. How much is your chosen asset worth? And would you be willing to risk it in the circumstance that you can’t repay your loan?
The Biggest Issues Facing Hospitality Business Owners Right Now
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:
- Credit card and Eftpos fees
- Tax and GST compliance
- Hiring and retaining of staff
- Increasing operating costs
- Attracting and retaining customers
An increase in working capital from a business loan could mean the difference between falling prey to these issues, or rising above them.
The Benefits of a Hospitality Business Loan
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:
- Upgrade the look and feel of your hospitality business with new fittings, fixtures, etc.
- Move to larger premises
- Purchase the latest point-of-sale technology
- Buy or upgrade equipment, such as utensils, appliances, etc.
- Purchase new stock
- Expand to additional locations
- Pour more time and resources into marketing and promotional activities
- Hire additional staff
- Provide working capital to help with the day-to-day management of your hospitality business
- Buy out a competitor within your market
How do you plan on using the funds from your hospitality business loan?
How to Maximise Your Chances of Hospitality Business Loan Approval
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!
- Meet the requirements
Let’s face it, if you don’t meet the lender’s minimum loan requirements, then you shouldn’t be applying for the loan. Keep in mind that each lender will vary, particularly when it comes to alternative lenders and banks. At Lumi, for example, we only ask that applicants have an Australian-registered business that has been in operation for at least 6 months with a minimum annual turnover of $50,000. Simple!
- Prove your skills, qualifications, and experience
Business lending can be risky, so it’s not uncommon for lenders to want to verify your skills, qualifications, or experience within your industry before they approve your loan. You want to inspire confidence in your lender, so if you’ve been running your hospitality business rather successfully for the last few years, let them know! Got relevant qualifications within hospitality too? Use it to prove your experience.
- Show your financial data
Speaking of experience, your lender will also want you to show the financial data of your hospitality business, including a record of your profit and loss, your costs and your current debts and assets.
- Familiarise yourself with ‘The 5 C’s’ that lenders look for
There are five fundamental factors that lenders will focus on when assessing your application and these are often referred to as ‘The 5 C’s’. They include:
- Character: your integrity as well as your willingness and capacity to pay back previous debts
- Capacity: your current capacity to repay the loan, including how your business will generate revenue and how much revenue is expected
- Collateral: this will have to be assessed to determine your asset’s current and future value, however this isn’t a necessary step with unsecured finance.
- Capital: your business’s assets and liabilities (i.e. specialized equipment or machinery your business owns, your products, inventory, buildings or other infrastructure)
- Conditions: this includes elements such as the loan amount, interest rate, fees, repayment schedule, and other factors.
- Have a business plan
A business plan is a powerful tool that can help you spot potential issues and propel your business forward, but it also comes in handy when applying for a business loan. If you don’t already have a business plan in place, don’t fret. We’ll be guiding you through how to write one in the next section.
Writing a Business Plan for Your Hospitality Company: What You Need to Include
There are 8 crucial components to a successful hospitality business plan. These include:
- Executive summary: this should capture all of the key highlights of your plan and spark your reader’s interest. (Here’s a word of advice though: write it last!)
- Company overview: this explores what your company is, as well as what it does. What is your mission statement? What sets you apart from other hospitality businesses?
- Market analysis: include information on your core target market, profiles of your ideal customers and other market research. Talk about the problem you’re solving, along with how those products fit into the current competitive landscape.
- Strategies: this is the ‘how’ section of your business plan. You can talk about the strategies and tactics you are using (or will use) to reach your intended target audience i.e. social media, promotions, press releases, web development efforts etc.
- Major company milestones: what are the specific goals you’ve accomplished (or wish to accomplish) so far? Provide details on how you will measure success and the metrics by which you will track your progress.
- Team: make sure you highlight the expertise and qualifications of each member of the team (including yourself) in your business plan. After all, you want to impress!
- Financial plan: this is perhaps one of the most vital sections for potential lenders and investors. Include elements such as your sales forecast, personnel plan, profit and loss statement, cash flow statement, and balance sheet.
- Appendix: While it may not be as crucial as the other components, you can still use this section as a bonus to include any supporting information, such as charts, graphs, product images, etc.
Check out our in-depth guide on How to Write an Effective Business Plan for more information.
What Do You Need to Apply for a Hospitality Industry Loan?
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:
- You’re an Australian-registered business (with an ABN or ACN)
- You’ve had a minimum of 6 months in business
- You have a gross annual turnover of at least $50,000
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.
How to Apply for a Hospitality Business Loan Online
To apply for a hospitality business loan online, visit the Lumi website. You’ll just need the following on-hand to complete your application:
- Your ABN / ACN
- Driver’s License
- Business bank account details (for online banking)
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.
Frequently Asked Questions About Hospitality Business Loans
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.
Further Resources for Hospitality Business OwnersWe’ve also written some additional guides for business owners just like you, which you can find below.
- Top 30 Social Media Tips for Small Business Owners
- 20 Questions to Ask Before You Apply for a Business Loan
- 30 Small Business Loan Terms You Need to Know
Want to find out more information about Lumi’s hospitality business loans? Visit our website or call 13 LUMI today.