Hotel Financing Issues To Consider Before Building

Hotel Financing Issues To Consider Before Building



Hotel Financing Issues To Consider Before Building
Hotel financing can be a​ complicated issue, whether you are refurbishing, buying existing properties, or​ building a​ new hotel, you need to​ be sure you have a​ good plan in​ place .​
For your project to​ be successful, you will need to​ be able to​ make the payments on the mortage, and any construction loans until the hotel begins to​ turn a​ profit.
Before any attempt can be made to​ secure hotel financing a​ working business plan must be developed .​
a​ strong business plan should cover all aspects of​ your operation, from construction, through to​ the loans being paid off, and ideally several years past that .​
If you are unable to​ show that the hotel can trade and turn a​ profit without the need for future loans to​ be taken out, then it​ will likely be very difficult for you to​ obtain financing.
Any business partners that you are involved with will naturally want assurances that their investment is​ a​ secure one, and that, should things go wrong, there is​ a​ plan in​ place that involves more than just selling the property to​ recoup any losses .​
In other words, you cannot have a​ plan stating if​ something goes wrong and you cannot afford the payments, you will sell the building and return their money.
Your Initial Equity Can Be a​ Big Help
How much of​ an​ initial investment you are capable of​ making can be the deciding factor in​ obtaining hotel financing .​
If you can begin with 25 percent of​ the total project cost for example, it​ should be easy to​ finance 75 percent .​
Keep in​ mind, your investment will be for the construction cost and most of​ your initial earnings from operation will go to​ the other 75 percent of​ costs .​
You will still need fund to​ pay for day to​ day operations and other expenses such as​ franchise fees and advertising.
As an​ example, if​ your hotel financing plan for construction is​ a​ $30 million facility, then after you include interest over the period of​ the loan, your construction costs could come to​ over $35 million .​
You will need to​ consider this in​ your plan, and also consider the impact any interest rate increases could have .​
a​ good way to​ do this is​ to​ look at​ how interest has changed in​ a​ similar time period (if your loan is​ for 10 years, then how much has interest risen in​ the past ten years) and base your projections on similar changes .​
a​ good plan, that has considered such issues, will stand you in​ good stead with prospective financiers.




You Might Also Like:




No comments:

Powered by Blogger.