Preparing a Hotel Loan Application: A How-To Guide
New Delhi : Are you an aspiring entrepreneur planning to apply for a hotel business loan? If yes, the process is not as easy as it may appear. There are no set guidelines or standards in this regard. Certain sellers publish checklists, but they are quite lengthy. Customizing them as per your requirements is going to be a daunting task. However, taking the following measures will ensure fast approval for your hotel loan application.
1. Know your requirements
A clear understanding of why you need money is the first step toward applying for a hotel business loan. Evaluate your options, assess your capital and find the area where you need help. Business loans are available for a wide variety of needs like; renovation, refurbishment, equipment financing, etc. Know what you want so that you can consider your options accordingly.
2. Choose the right lender
Financial institutions and lenders that offer hotel loans are in plenty. You must make sure that you choose the right lender to get the type of loan you need. Following are some of your choices:
• Bank: This is the most preferred option. Banks generally offer the lowest interest rates with flexible repayment terms. A bank is the best choice to approach for a hotel loan. But it might not be for you if you need a collateral-free loan.
• Micro-lenders: Micro-lenders are non-profit organizations that offer small short-term loans. This is the way to go if you are unable to get a traditional bank loan for any reason. Applying for a loan here may take time. The organization will need a detailed business plan. You will also have to explain the purpose of the loan. Still, it is a feasible option for small businesses with no operational history or collateral to secure a loan.
• Online lenders: Online lenders are favorites among those who need hotel loans within the shortest time possible. They approve applications fast and disburse the amount within 24 hours. However, the interest rates may be higher when compared to their traditional counterparts.
3. Explore your choices
Know the different types of loans you can avail. It lets you make informed choices. Given below are some of your options:
• Term loan: As the name suggests, this is loan available for a stipulated timeframe. It is a one-time loan customized as per your requirements. The loan can either be secured (with your assets as a guarantee) or unsecured (without submitting any security). It can further be classified as long-term and short-term. Going for a long-term loan offers a lower interest rate.
• Invoice discounting: This is a type of short-term loan designed to help businesses arrange working capital. Certain buyers buy goods from you in large quantities. They, at times, seek more time to pay them. And you will need the money to operate your business. In such an instance, you can choose invoice discounting. Here, you sell your invoice to a lender at a lower price than what is printed on the invoice. The lender buys it and pays you allowing you to continue with your business. When the buyer pays, you repay the loan in full.
• Line of credit: This is an agreement between you and the lender. You agree on a maximum limit to the funds available, and the lender allows you to borrow until you reach that limit. The option offers the most flexible pay-out tenures. However, the interest rate may sky-rocket. You will have no idea when you will use your credit card to make a purchase. However, you can borrow again after repaying your current loan.
• Merchant cash advance: Here, you take an advance based on the credit card sales you receive. This is perhaps the fastest way to get working capital for your business. If you are qualified, you will get the loan within 24 hours upon approval.
4. Check eligibility requirements
Eligibility may vary from company to company. However, given below are the general criteria:
• You should be more than 25 years of age
• Your business should have at least one year of service
• It should have submitted its tax return at least for one year
The following table explains the documents necessary if yours is a startup venture.
|Photographs||Two copies; passport-sized|
|ID proof||Aadhar card, driving license, Voter’s ID, passport, PAN card|
|Proof of address||PAN card, post-paid phone bill, passport, Aadhar card|
|Proof of age||PAN card, passport|
|Bank statements||Of six months|
|Income proof||Tax returns, salary slips|
|Proof of signature||PAN card, passport, Signature verified by your bank|
|Proof of IFSC code||Cancelled checks, copy of the bank passbook’s front page|
5. Know the processing and closing charges
This too varies based on the financial institution you choose. Contact your lender to know more about it. And don’t forget to check the interest rates and repayment terms.
6. Apply for a hotel business loan
After enough research, choose the type of loan you need and know what it takes to obtain it. The next step is to apply for it. You can do it either online or offline. Applying online is highly recommended. Most lenders offer lower interest rates to borrowers who apply online. Besides, the process is fast and easy. Almost all financial institutions offer flexible terms and low-interest rates to encourage startups. Make sure that you are applying to the lender's official portal.
Points to remember
There are ways to get a hotel loan even if you don't have a good credit rating. However, maintaining a high credit score will work in your favour. It will help you get your loan approved fast. Lenders will be willing to lower the interest rate upon request. There are also government schemes designed to encourage aspiring entrepreneurs. Do your due diligence and get the most from the scheme of your choice. If you are eligible, applying for a hotel business loan from the government is the most feasible option. It guarantees lower interest rates and flexible tenures.
India is standing up. And getting a hotel loan is a breeze now. Act fast; you have no excuse to lag!