What is Hotel Asset Finance?
Hotel asset finance is simply a financial tool used by hoteliers to fund their hotels, which enables them to access the assets they need for their business. It is a very broad tool that can be used to fund a huge variety of equipment essential to the running of a hotel. Hotels need to cater for a vast number of guest needs, there are the obvious basic requirements, such as a bed for every guest-room down to the teaspoons used to stir their tea at breakfast.
The cost of all the required equipment can seem never ending for a hotelier, and the price of a never-ending list can be astronomical once everything is factored in. Regardless if it is a hotelier setting up for the first time or looking to renovate their existing hotel, this bill will quickly eat into budget or cashflow, so in order to obtain the required assets, hoteliers are able to use hotel asset finance. Hotel asset finance enables hoteliers to spread the cost of the equipment over a number of years, generally over two to five, paying monthly until the asset has been paid off.
What can be financed using Hotel Asset Finance?
Simply, if it is in a hotel then it can be financed. As mentioned above the amount of required equipment hotels need just for their basic operation is mind boggling. For each room as standard a guest will find, a bed, two side tables, lighting and lamps, a desk and chair, a television, a bathroom suite, wardrobes and a chest of drawers. All of this can be financed, even the cost of fitting out the bedroom can be financed.
Of course, the bedrooms are only part of the overall guest experience, perhaps you want your hotel to offer its guest a relaxing pool with a sauna and steam room. It is essential that every hotel has a kitchen, and a subsequent dining area and then there is the reception and the lounge. Everything that you can imagine in the hotel is able to be financed and the upfront cost spread over two years or more.
Maybe your hotel will also have a gym for guests, offer air conditioning throughout for guest comfort, both of these can be financed. Then there is the back of house and back office, so laundry equipment finance to office equipment finance.
How does Hotel Asset Finance work?
At GSM we work with 35 lenders, all of which have a different risk profile and some are more comfortable lending on certain assets then others. With this knowledge we are able to take certain assets for your hotel to certain lenders and other assets to others, to ensure you get the right tailored package. It will all start with a quote, invoice or purchase order from your supplier. Once this has been received, forward it to your dedicated finance broker, who will handle the application from there on. You broker will set you up a profile, for which he will need your latest annual year end accounts and the previous three months management accounts. If personal guarantees, commonly abbreviated “PGs” are available from a director of the business then your broker will also need them to complete a Statement of Assets and Liabilities. When PGs are available, this generally gives access to better rates from our lenders as this gives them an added level of security so that in the worst case the director will guarantee the return the financed asset.
Your broker armed with all this information will take it to market, find you the most appropriate lender and will provide you with an indicative quote. Your indicative finance quote will outline the term of the agreement which is set to the business’s preference, as well as the monthly repayments due.
Should you wish to proceed, your finance broker will then take your application to credit, which will then be approved by the lender, and the funding will be allocated. The lender will then pay your supplier directly in full, your supplier will supply the asset and the lender will then collect the monthly payments from the hotel.
Boutique Hotel in Nottingham. In 2017, GSM Finance helped a 14 Bed Boutique Hotel in Nottingham undergoing a full refurbishment which included bedroom furniture finance, office equipment finance, kitchen equipment finance, fit out finance for the bar, dining room, reception and lounge as well as air conditioning finance. In total, GSM structured asset finance deals totalling £750,000, and spread the majority of the deals across five years. In doing so this relieved pressure off of the business’s cashflow, as the newly refurbished hotel remarketed itself as the go to hotel in Nottingham. This also helped management set realistic sales target and budget its cashflow accordingly as it could include these costs into their forecasts.
What Other options are available to Hoteliers?
Business Loan: Alternatively, hoteliers are also able to take out business loans, however these generally would be in place to supplement the asset finance above. It is highly unlikely for a business, like the 14 bed Boutique Hotel, to be able to get a £750,000 unsecured loan. It is not possible however to finance all business expenditure, which is the vital role that business loans play. Essential costs to the smooth running of a hotel business such as staff wages, stock costs and marketing budget can all be funded using a business loan. However, business loans should be left as free as possible to act as a rainy day fund for the quieter industry months in the calendar year.
Refinance: Another way that the hotels are able to raise the finance they need to expand is through refinancing existing hotel assets. For example, if the hotel was part of a small hotel chain, we would be able to structure deals where the lender would take title of business assets already owned, say the £100,000 air conditioning installed in Hotel One. The lender would then lend that amount to you and lease the asset back to the business, recouping the loan through monthly repayments secured against the
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