4 ways to finance your new hotel project

With many COVID-19 travel restrictions in the rearview mirror, travelers are eager to make up for lost time and enjoy new experiences. Factor in the fading popularity of Airbnbs, and the hotel industry has a golden opportunity to capture new, eager tourists with exciting and authentic properties. After you’ve solidified the idea, researched the market, and developed your hotel business plan, you need to bring your hotel idea to life. And that takes capital. After all, the national average cost (according to Fixr) to build a hotel ranges from $13 million to $32 million. At the low end, you can build a motel for $7.5 million, while luxury five-star hotels can cost more than $60 million.

Here are some avenues to consider for financing your hotel project.

1. Conventional bank loans

Conventional bank loans are standard commercial loans issued by a bank or lending institution, not backed by the federal government. Conventional bank loans are an option for hotel construction. To secure a conventional bank loan, hoteliers should prepare a strong proof of concepts for their new hotel construction project. To secure a conventional bank loan, it also helps if a company has an established banking history with the lender. 

2. SBA loans for hotel businesses

Hotel companies are eligible for Small Business Administration loans, including the SBA 7(a) loan and the SBA 504 loan, both which offer a higher loan-to-value than conventional loans. The SBA 7(a) loan offers up to $5 million in funding that recipients can use to start new hotel businesses, buy existing hotels, renovate old buildings, construct new buildings, buy hotel equipment and supplies, and refinance existing debt. The SBA 504 loan can offer up to $5.5 million to help recipients finance land purchases, building construction, construction materials and equipment, and renovation expenses. 

3. Investors specializing in the hotel industry

Investors often specialize in specific industries, and many investors focus on hotel real estate investment. A few of them include Trinity Investments, Seaview Investors, and Hotel Investment Group. Investors that specialize in hospitality can provide more than funds – as specialists in the industry, they can provide guidance to ensure your hotel is profitable today and for years to come.

4. Crowdfunding for hotel investors 

These days, you can crowdfund just about anything, including hotel startup costs. EquityRoots uses crowdfunding to raise capital for real estate assets, specifically franchised hotels. The company has 12,000 investors on its platform, has raised $7.3 million through crowdfunding, and has generated $25 million in new construction development.

To secure funds for your hotel construction project, you must develop a sound business plan. Adding a cost-efficient construction partner dedicated to high-quality products and services will help you secure funding for your hotel construction. Contact Compass Group today to see what we can do for you.