Australian owned and operated. Supporting Australian small businesses for 10 years.

Hospitality Business Loans: How Do They Work?

If you are armed with the right information, getting your hospitality loans approved will be an easy process. 

Many things contribute to the success of hospitality businesses. But chief among them is the availability of money. 

If you can get money when you need it, growing your business will be easier. You’ll be able to solve the problems plaguing your operations. You’ll be able to increase your operating costs. You’ll be able to hire and retain more staff. And attracting and retaining customers will be easier, too. 

One easy way to get access to funds when you need it is via hospitality loans. And in this article, we’re going to explain everything you need to know about hospitality loans. 

What Are Hospitality Business Loans? 

Hospitality business loans are financial packages that give hospitality businesses access to money whenever they need it. You get a sum of money and repay it in installments over a period of time. 

There are 8 different types of hospitality business loans: 

  1. Unsecured Business Loans

These loans don’t need collateral. Lenders only require guarantees from business owners to approve them. They also take a look at your credit score, but it doesn’t play a huge role in the decision process. The application process is quick and the loan could be approved in less than 24 hours. 

  1. Secured Business Loans

This type of loan requires collateral and the process is more sophisticated. However, this loan type allows you to take out larger sums of money over longer periods, as compared to unsecured loans. 

  1. Long-Term Business Loans

Long-term business loans are repaid over a long period of time, usually between one to 30 years. They’re ideal if you’re borrowing from half a million dollars to $50 million. 

  1. Short-Term Business Loans

As the name suggests, the repayment period for this type of loan is short—between three to 18 months. There’s also a lower limit to how much you can borrow, especially compared to long-term loans. 

  1. Line of Credit

This is a financial instrument that allows you to borrow a fixed amount of money annually. You can withdraw from this amount at any time to cover cash flow shortages or unexpected expenses. 

  1. Invoice Financing

You can also leverage unpaid customer invoices to get financial support for your hospitality business. How much you can borrow depends on the credibility of your customers. 

  1. Equipment Financing

This allows you to borrow money using existing equipment or an equipment you want to buy as collateral. The terms are dictated by the worth of the equipment. Once you repay the loan, the equipment becomes totally yours. 

  1. Merchant Cash Advance

This is tailored towards hospitality businesses that receive most of their payments via credit card or EFTPOS. The amount you borrow is repaid with future card transactions. 

Choosing the Best Loan For Your Hospitality Business 

There may be several types of hospitality business loans, but not all of them are ideal for you. To choose the perfect one, put these factors into consideration: 

  1. Interest rate. This determines how much you’re going to pay back to the lender. It could be fixed or variable. Compare loans to see which one is best for you. 

  1. Loan Risks. Every loan has an element of risk if repayments can’t be made on time. Check what those are before applying for a loan. 

  1. Fees and charges. Apart from interest, loans often come with some fees and charges. Know what those are before committing to any loan. 

  1. Repayment schedule. Are you paying the loan weekly, monthly or every fortnight? How much do you have to pay each time? Some loans don’t have a regular payment schedule though. It’s always good to know this detail beforehand. 

  1. Loan terms. Ensure that you have a complete understanding of all the terms stipulated by the lender before making any commitment. If something isn’t clear, don’t hesitate to request for clarification. 

5 Ways to Boost Your Loan Approval Chances 

Applying for hospitality loans used to be a drawn out, complicated process. But that’s not the case anymore. You can get your loan approved quickly if you do these 5 things. 

#1 – Meet the Basic Requirements 

Let’s be frank. You have no business applying for a loan if you don’t know what lenders expect from you.

Before you can apply for any loan in Australia, your business has to be registered with the government. You also need an Australian Business Number (ABN) for the application process. 

These requirements vary from one lender to another, so take note of what your lender is asking for you. 

If you don’t meet the basic requirements, your loan application will not even be considered, much less approved. 

#2 – Have a Business Plan

Nothing tells a lender you’re serious about your business as much as a business plan does. 

Having a business plan means that you’ve mapped out how to generate revenue in your business. As a result, you won’t have a problem repaying whatever amount you’ve borrowed. 

It puts the odds in your favor. 

#3 – Prove Your Skills and Experience

Lending people money is risky because some of them won’t be able to pay back. As a result, lenders are often interested in your skills, qualifications, and experience. They would be more keen on offering you financial assistance if they know you’re valuable. 

So, inspire confidence in your lender. Let them know if you have relevant skills or qualifications that guarantee success in the hospitality industry. Don’t hesitate to mention it if you’ve got great experience, as this assures them that you know what you are doing in business. 

In effect, this gives them the confidence that you have the capacity to repay the loan. It makes your loan approval quicker and less difficult. 

#4 – Show Your Financial Data

Lenders always want to see your financial data. They’re interested in your profit and loss record as well as your debts and assets. 

This plays an important role in deciding whether to approve your loan or not. If you don’t supply this information, your application could be delayed or rejected. 

#5 – Pay Attention to the 5Cs

All lenders look for five things before granting a business owner their loan application: 

  1. Character. They seek people of integrity who are true to their words and have repaid previous debts. 

  1. Capacity. They want to know that you have the financial capacity to pay back the loan. Your revenue generation model and expected future revenue play a big role here. 

  1. Collateral.  Having valuable collateral like land or a house boosts your chances of approval. 

  1. Capital. Your business assets and liabilities are also important. If you’ve got more liabilities than assets, there’s the likelihood your loan application could be rejected. 

  1. Conditions: The terms and conditions of the loan also factor. This includes how much you want to borrow, the interest rate, repayment schedules, fees, and so on. 

Tailor your application to put you in a good light when it comes to these factors. Doing so will increase your chances of getting the financing that you need.


Grow Your Hospitality Business With The Right Loan

Building a hospitality business takes time and patience. But without adequate financing, this process will only get harder. 

That’s why you should consider taking a loan when you have gaps in your cash flow. 

However, make sure that a loan is perfect for you before committing to it. Take note of the interest rate, repayment schedules and other terms and conditions. This way you won’t run into any problems down the road. 

It also pays to have a business plan and convince the lender that you have the capacity to repay the loan. This will boost your chances of approval. It will ensure that you have funds to grow your business whenever you want it. 

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

Share the Post:

Related Posts