written by | March 23, 2022

How to Choose a Hotel Loan? Is It Truly Beneficial?

 The hotel business is among the most lucrative ones, and setting up this business is not as tough as it used to be. Capital is required everywhere for new hotel construction, renovating, furnishing, or buying a new hotel.

You may have a very bright hotel business set-up idea, but you may not have adequate finance. Business loans for hotels can be a straightforward solution to all these expenses.  

Hotels, beds, motels and all amenities can be very expensive, and without proper funding, it can be tough for you. The hotel business can generate immense revenue, and repaying the loan won't be a challenge for you. 

Even if you already own a good hotel, you may still need a large amount to expand or renovate your hotel, and again, hotel loans prove to be a helping hand.  

Did you know?

According to The Economic Times, The Ministry of Tourism & Culture announced a very helpful new scheme for hotel owners who want to expand the size of their hotels. The hotelier will receive ₹2 lakhs per room in the one-star category, while the maximum limit is ₹30 lakhs for 15 rooms.

Features and Benefits of a Hotel Loan

A lot of hotel equipment is a must-have for business, and a hotel loan is essential in this case and provides more than just financial support. 

These are the key advantages and features to help fulfil your hotel's needs.

  • The flexibility of tenure: Hotels may have different financing requirements that are either long-term or shorter-term. Hotel credit is a good option because it provides business owners with an option of tenures ranging between 12 and 60 months.
  • Rapid approval and disbursement: A good hotel loan will satisfy the ever-changing requirements of the business in a short time. The bank allows the application for a business loan to be approved in five to 10 minutes. Additionally, you will receive your loan amount in as short as 24 hours!
  • Minimal documentation policy: As an owner of a business, there are many documents to look through regularly. In this regard, business loan companies in India limit paperwork only to require a handful of essential documents to complete your hotel loan.
  • Repayment and security: Term loans are sanctioned under the scheme. For instance, you get a payback period of 3 to 7 years in the case of SBI bank, and the startup period doesn't exceed 18 months. If you get your working capital sanctioned as cash credit, you can repay it at your convenience. 
  • When we talk about security, again, it depends on banks. The bank will ask you to build LIC policies per the loan's quantum. Bank fixed deposits, tangible collateral like land, etc. worth 50% of the entire loan amount. While approving any hotel loan worth more than ₹1 crore, CGTMSE coverage won't be available. So, the banks will necessarily demand collateral security. Policies differ from one bank to another. 

Also Read: All you need to know about Hotel Business

Are There Other Loans Available for Hotel Construction?

The State Bank of India has got Paryatan Plus loan scheme for you, in which it offers loans for:

  • Expansion, renovation, renovation, or modernisation of hotels, guest houses, rest houses.
  • Building and operating coffee houses, fast food centres, restaurants, health clubs or spas, ice-cream parlours, ropeways, amusement parks, etc.
  • Purchasing of vehicles (luxury coaches, cars, buses, vans).
  • Construction of office premises, buying office equipment and computers by travel agents or tour operators.
  • Buying of houseboats and luxury boats

Types of Hotel Loans

You get a loan in a cash credit/term loan or letter credit/bank guarantee or combined. It depends upon your repayment capacity or requirements. 20% is the margin money except for second-hand vehicles, and the margin money is 40% for second-hand vehicles older than five years. A few banks have different conditions than that. 

Before you start hotel construction or build it with a hotel loan, be sure to understand the credit and debit working criteria if you’re a manager. Here is the list of different types of hotel loan:

New Term Loan or Overdraft (Also Known as a Line of Credit)

  • Repay loans are from various directors or institutions or relatives.
  • Working capital financing to take charge of day to day activities of a business.
  • Expansion of the hotels, restaurants and resorts business.
  • Takeover or purchase of hotels.

Refinancing Loan to Decrease the Obligation

Suppose you find that the hotel and restaurant business's cash flow does not meet the repayment plan, which makes it difficult to pay back the loan in time. In these situations, Hotels businesses may refinance their existing loans by taking over for a more extended period (10-15 years) with lower interest rates.

It will allow them to lessen the burden of repaying the hotel loans without impacting the institution's credibility. For example, the current loan amount outstanding is the amount of ₹12 crores

You can pay it within three years: the obligation to repay amounts to ₹4 crores annually, plus interest. Refinancing by a new financial institution over 12 years at lower interest will result in a new obligation of ₹1 crores annually plus interest. You'll require a loan transfer time of 20-30 days in this method.

Also Read: Explore The Profitable Food Business Ideas

A Loan to Hotel Lease Rental Income

Many hotel construction or properties are available on lease to corporations or multinational companies, which is a profitable business in India. Lease rental discounting, also referred to as LRD credit, can be a relatively simple method of getting financing from banks.

The loan condition on the expected monthly rental earnings over time and the market hotel's property value that you use as collateral. The loan is a negotiation between the lender who owns the hotel's property, the tenant who has obtained the premises under the lease, and the bank financial institution willing to fund the hotel rent. 

The hotel lending could be in the form of a term loan, overdraft, or credit line. You can get the loan amount starting at ₹25 lakhs up to ₹50 crores with a processing time of 10 to 15 days. Some banks offer easy access to LRD loans by utilising a simple online application form, online documentation, and a simple hotel loan procedure.

Consolidation of Several Hotel Loans Into One Loan

If the company has several loans on the go (Project loans, Machinery Loans, or Unsecured Loans), then making it all in one loan will be the best alternative. Also, it'll make it easier for you to pay the loan.

In addition, through this consolidation, hotels, restaurants and hotels will save money on interest. The time required for this type of consolidation of loans is between 15 and 30 working days.

Unsecured Credit to Hotels and Restaurants

Choose a bank that offers unsecured business loans to Hotels without giving any property as collateral. The government loan for hotel business ranges should begin at ₹25 lakhs up to ₹3 crores. These funds are available to fulfil any company's need and are only available to businesses with minimum stability of three years. The time required to get these secured loans is between 5 and 10 working days. Also, this information will differ from bank to bank.

Documents Required

  • Last 12 months bank statements
  • Three years audited financials with computation and detailed audit report and IT return
  • Existing loan sanctions letters and loan statements
  • Property documents
  • KYC of firm & partners, proprietors or directors
  • Partnership deed, MOA, AOA,  or proprietary registration

Conclusion

Sometimes, the bank doesn't accept hotels for funds. Banks' policies can help transfer the existing loan to a new lender with a topping up without additional security. In this way, hotel loans can be really useful to those having a proper business plan.

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FAQs

Q: How to apply for a hotel loan online?

Ans:

Applying for hotel business loans doesn't require many documents, and this process is generally simple and hassle-free. Here's the process: 

  • Apply for the loan online: No matter what type of loan you want, you can't start the process without filling out the primary application. Visit the bank's official website, fill in the primary information in the application, and submit it. 
  • Submit the necessary documents: You must submit all vital documents, including the owner's identity, your hotel's turnover and a few more documents per the bank's demand (which may vary). Most importantly, you don't have to upload too many documents, so the processing time remains short. 
  • Loan amount disbursal: The review period of a hotel loan application is one day, and in some cases, it's a matter of just a few hours. After approval, you'll have to wait for 72 hours for the loan disbursal.

Q: Can I get a loan to start a hotel?

Ans:

Hotel loans allow hotel owners to complete the required cash amount to renovate a hotel or start building a new hotel. Hotel bridging loans can be highly advantageous if you use them to put up a new building.

Q: How much loan for the hotel business can I get?

Ans:

To meet any business-related expenses, you can get as much as ₹45 lakh from Indian banks.

Q: What does a business loan for hotels mean?

Ans:

The main purpose of a hotel loan is to support you in consolidating your presence in the hospitality industry. These loans can be of many types depending upon size and structure. There are many types of hotel loans, and by knowing all the positives/negatives, you can choose the best one.

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