There are more than 4,100 hotels in South Africa, and they generated revenues of more than R19.65 billion in 2023.
Even with the pandemic, the industry has managed average growth every year since 2017 and forecasts for the future reveal this trend is not a blip.
However, with success comes rising expectations. Customers want increasing value for their money, which puts hotels in fierce competition to expand, renew and innovate to catch their share of a growing market. Unfortunately, such strategies don’t come cheap. Buying hotels, building new, or engaging in extensive refurbishments is expensive, and in an industry where margins are under constant pressure, paying for long-term investment with short-term working capital can be an issue. Fortunately, there’s a solution to this dilemma: Hotel owners can stay ahead of their competitors without putting strain on cashflow by using hotel loans and mortgages to pay for upgrades, acquire new properties, or cover seasonal low points. Read on to discover more about these types of funding and how to put your hotel’s financial problems comfortably to bed.
Hotel funding comes in a variety of shapes and sizes, and it can be used to refinance a current hotel loan, renovate your hotel building, acquire an existing hotel, build a new hotel, or cover seasonal quiet spots that create a cashflow squeeze. These loans are often tailored to fit the unique financial circumstances of the hotel industry, and in many cases, the property or acquired assets work as security and there is no need to provide additional collateral. This means hotel owners and companies that have weak credit or have been previously turned down for funding may still be able to obtain the financing their business needs to grow.
Common types of hotel funding:
A ‘family office’ is an investment vehicle favoured by wealthy families who use the office to invest in various types of venture. Obtaining hotel funding from these sources will typically require the right introduction and a first-class presentation to attract the investor’s attention. As with all private investment, securing the funds you need from a family office can be a slow process, but if you are successful, an initial investment may turn into an extended period of financial support.
Also known as ‘peer to peer’ investment, crowdfunding relies on the power of the internet and the support of small investors and donors to deliver the funding a hotel project needs. Project owners seeking funds will post a presentation on a crowdfunding website and encourage viewers to support their cause. Supporters will usually provide investments or donations in small amounts in return for a reward, such as a free weekend break, or a discount off hotel amenities, with many investors needed to achieve the target sum. This kind of funding is essentially a gift, with the project owner not required to repay the investment as long as they use the funds according to their business plan and presentation. Crowdfunding can be used for many purposes, but it will usually score well if it is heavily promoted with existing contacts and on social media, and it proposes something original – such as the launch of an eco-friendly hotel that is 100% sustainable. Additionally, crowdfunding bids are time-sensitive. If the project fails to reach its funding target by the end of the donation period, any funds that have been pledged are usually returned to the investors.
Most government grants for the hotel industry are now closed to new applicants, although it may still be possible to secure business rates relief. For entrepreneurs seeking to launch a new hotel, a startup loan may give them the seed cash they need to get a new hotel off the ground. Loans of up to R25,000 are available, with no added security required.
The hotel industry is highly dynamic, with the gap between winners and losers forever widening. This elevates the risks involved with hotel funding and it means every lender will have their own approval criteria. This may affect the documentation they request. However, most hotel funding applications will require:
The lender will also conduct standard credit and security checks.
Top tip: Check your personal and business credit scores before you apply. Errors on your report could impact limit your ability to secure the hotel loan you need.
Hotel funding is a niche area, with differing rules of application. Hotel owners seeking this type of financing may find themselves forever searching and making applications to lender after lender. The delays this can create could cause you to lose business and leave your hotel vulnerable to the competition. Instead, working with a broker, who can access hotel finance and mortgages from a wide range of lenders is a better way to go. No more cold calls and endless demands for information. Simply tell us what you need and leave the rest to us.
Check in with Swoop to find the best rates, the best terms and the best hotel finance and mortgages all under one roof. Get started today.
Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.
Owner, F45 Cambridge
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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