It’s common knowledge that hospitality businesses often fail in their first five years. And the common reason for this is a lack of funds.
You see, hospitality businesses are prone to having cash flow problems. As the owner of a hospitality business, you know there are moments when you’ll have abundant funds. At the same time, there are times when cash inflow will slow down to a trickle or even dry up.
But despite having gaps in your cash flow, you’re still expected to pay important bills. This includes workers’ salaries, rent, and other operating costs.
To counter the lack of funds, hospitality business owners often downsize temporarily. They retrench workers and cut down on some of the services they offer their customers. While this might help survive difficult moments, it affects customer satisfaction.
In the end, it impacts the growth of the business.
You don’t have to follow the same path. Instead of downsizing temporarily, you can get hospitality loans for your business. This provides enough funds for your operations to run smoothly. You can even leverage this support to expand your business and grow bigger.
Without further ado, let’s talk about 7 types of hospitality business loans that you can benefit from.
Secured loans are backed by collateral. This means that you can’t apply for them if you don’t have collateral like a house or land.
This collateral is your way of assuring the lender that you’ll pay back the loan. And if you default, they can easily lay claim to the collateral or sell it to recoup their money.
If you’re taking out a secured loan, ensure that you’re happy with the terms of conditions offered by the lender. Otherwise, consider other lenders or other financial support options.
Also, know that the approval process for this type of loan could take weeks.
You don’t need collateral to apply for unsecured hospitality loans. Qualifying for one is also easier, although the requirements differ based on the lender.
In addition to this, unsecured loans are flexible. Often, you’re allowed to choose how much you want to borrow. Some lenders will even let you repay early without any penalty.
Most people go for unsecured loans because they’re a way to get access to funds fast. The application process and approval are usually quick and straightforward.
However, these loans come with higher interest rates. You may also be required to pay an upfront fee.
A revolving credit facility is often referred to as a credit line. It gives you access to funds on a ‘tap in, tap out’ basis.
Here’s how it works:
- You’re provided with a lump sum on approval.
- You withdraw from this sum whenever you need funds. You can use the money to take care of your business’s needs.
- You make repayments only on the money you withdrew and used
A revolving credit facility can be instrumental in handling cash flow gaps. They can come in handy when you’re faced with unexpected business expenses.
A merchant cash advance is tailored toward hospitality businesses that receive most of their payments via credit cards.
It’s unlike traditional loans where you make monthly repayments. Instead, you pay back with a percentage of the money your customers pay to you in the future. That’s in addition to a fee the lender will charge.
Think of this as if the lender bought the future cash flow of your business.
If you need certain equipment or an asset for the smooth running of your hospitality business, you could take out a loan for it.
What happens here is that once you get the loan, you’ll use the money to purchase the asset. The asset will stand as collateral for the loan. Then, you’ll make repayments plus interest until the loan is fully paid. Once that is done, the asset fully becomes yours.
Business credit cards work just like personal credit cards. That is, you’re offered credit up to a limit and you can withdraw from it any time you like. The difference is that you can only use the funds for business-related expenses.
When you apply for a business credit card, you’re expected to pay an annual fee, interest charges, and other costs associated with credit cards.
Business credit cards are a traditional way to get funds for your business in a short period of time.
This financing option allows you to borrow money from lenders based on your invoices. It’s a way to use the money owed to you as a loan asset. This way, you can get funds when you need it and pay it back when customers settle their bills with you.
How much you can borrow depends on how much your customers owe you. It also depends on how trustworthy those customers are.
Before you agree to invoice financing, understand the terms and conditions of the loan first. This will help you protect yourself from running into trouble in the future.
To operate and grow a hospitality business, you need constant access to adequate funds. If you can get money when you need it, you’ll easily plug the gaping holes in your cash flow. This will allow you to run a smooth hospitality business that experiences consistent growth.
To get access to these funds, make sure to leverage any of the seven options for financial support that were mentioned in this piece.
If you need further assistance, Unsecured Finance Australia is here to help. Apply online and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.