India ranks among the top countries whose travel and tourism sector make a large contribution to the GDP. The hospitality sector of which Hotel Business is an important segment has seen massive growth in the recent past. The present demand for hotel rooms is growing at 6% per year, but the supply growth is 3% per year. The potential for growth of Hotel Business in India thus opens up a host of opportunities for lenders to extend loan for hotel construction in India and fund hotel related ventures. Loan for hotel business in India is tailored to suit entrepreneurs who aspire to be a part of the growing market.
What is a Hotel Loan?
A Hotel Loan is a specialised financial product to support the unique needs of hotel owners and operators. These loans are designed to help with various business requirements. Hotels face industry-specific challenges such as seasonal demand, market fluctuations, and the necessity to maintain high guest satisfaction. An MSME loan for hotels takes these factors into account and offers tailored solutions that make it easier for hoteliers to access the funds they need to maintain and grow their business.
Prerequisite for Hotel Loans in India:
The Indian hospitality and tourism sector had a massive inflow of FDI of USD 10.90 billion during the period spanning from April 2000 to December 2017. While vibrancy of the sector has opened up opportunities, getting a tailored credit solution becomes crucially important. Hotel business has its own specific needs. Identifying the area for hotel business loan is one of the basic principles in opting for the right loan solution. The specific needs in very broad terms could be in the area of:
- Refurbishment
- Renovation
- New Restaurant
- New Business Center
- Purchase Security Equipment.
- Covering operational expenses
- Purchasing existing hotels
Apart from the above, there are several expense areas in the hotel business that need a provision of hotel project finance for smooth operations in this critical service industry.
- Food and Beverages ingredients.
- Hiring equipment, cleaning materials, housekeeping inputs etc.
- Music and entertainment
- Lighting, heating and fuel cost
- Repairs, renewals, AMC cost etc.
- Gardening and horticulture cost
- Manpower and welfare cost
- NOC, Insurance, License, Stationery, Administration and Finance Servicing charges.
- Sales and marketing
- Miscellaneous
With such a broad spectrum of expenses, following tips for the applicant shall ensure quick approval of business loans for hotel construction.
How Do Hotel Loans Work?
Hotel loans are designed to address the diverse financial needs of hotel businesses. It can be for new constructions, renovations, purchasing equipment, or refinancing debt. After evaluating your creditworthiness and financial history, lenders offer funds either as a lump sum or a revolving line of credit.
Once approved, the loan is disbursed according to the terms agreed upon with the lender. Repayment typically involves monthly instalments, which include both principal and interest, over a predetermined period. The repayment tenure can be as long as 60 months. This allows flexibility based on your cash flow and business strategy. For higher loan amounts, borrowers can opt for a secured loan by using their property as collateral. They may offer better terms, such as lower interest rates or extended repayment periods. Interest rates can be either fixed, remaining constant throughout the loan tenure, or variable, fluctuating with market conditions.
Hotel loans can be used for a wide range of purposes. Comparing different loan options is crucial to ensuring you choose the best plan that aligns with your hotel’s long-term goals and financial health.
Different Types of Hotel Loans
When financing a hotel in India, there are several loan types to consider, each designed to suit different business needs. These include cash credit/term loans, letters of credit, and bank guarantees. The type of loan that works best for you will depend on your repayment ability and specific business requirements. Here are some common types of hotel loans:
- Loan Refinancing: If your hotel’s cash flow struggles to meet repayment schedules, refinancing is an option. This process involves extending your loan over a longer term, usually 10 to 15 years, at a lower interest rate. It helps reduce the financial burden and manage debts more efficiently. Refinancing also allows you to re-negotiate more favourable terms. It improves long-term financial stability for your hotel.
- Loan Consolidation: If your hotel has multiple existing loans (such as machinery or unsecured loans), consolidating them into one loan simplifies repayment. It also reduces interest costs. By bundling multiple loans into one, you can streamline your finances and avoid juggling several due dates. This process typically takes 15 to 30 working days. It also helps to create a single, more manageable repayment plan.
- Lease Rental Discounting (LRD): Many hotels lease their properties to corporations or multinational companies. These can be highly profitable in India. Lease rental discounting allows you to leverage your hotel’s rental income to secure financing from banks. This type of loan is based on your future rental earnings and the market value of the hotel property used as collateral. With loan amounts ranging from ₹25 lakhs to ₹50 crores, the financing option can come in the form of a term-loan, overdraft, or credit line. Processing typically takes 10 to 15 days. Some banks offer simple online applications and quick approvals, making it a convenient way to fund your hotel operations.
- Unsecured Loans: For hotels looking for capital without putting up collateral, unsecured business loans are ideal. In India, government-backed schemes can offer loans starting from ₹10,000 up to ₹3 crores. These are available to businesses that have been operational for at least three years. With no collateral needed, they provide fast access to funds. It allows hotels to address urgent financial needs or expansion plans. Processing times are usually between 5 to 10 business days, depending on the bank.
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Important tips to consider for hotel loan |
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Market Feasibility |
An important aspect is the location of the property. A place frequented by tourists or businessmen is more likely to generate profits. |
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Tenure of Loan |
Longer the tenure, lower is the hotel loan interest rates. |
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Sound Plan |
A sound business model is important to the lender featuring:
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Credit Score |
Any rating above 750 is ideal for a hotel loan proposal |
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Personal Net Worth |
Robust PNW will ensure your capacity to liquidate the loan |
Features and Benefits of Hotel Loans:
This category of credit comes under the ambit of business loans. In India, the mainstay of funds for small and medium enterprises is still vested in the Banks and NBFCs. Of late there has been a spurt in the rise of Fintech Companies like Lendingkart on the horizon, which are basically Digital NBFCs rewriting the contours of business lending in India with innovative products. Let us check the features and benefits that offer an enterprise the necessary competitive edge in the specific business eco-system.
- Customization: Tailored loans helps the business to grow, invest in infrastructure, plant and machinery and provide working capital for operations.
- Quick Processing: We process loans super fast within a matter of 72 hours, provided the proposal is in order.
- Absence of Collateral: Unsecured hotel loans India needs no collateral as security.
- No Hidden cost: Loan processing is transparent precluding the imposition of any hidden charges.
- Flexible Repayments: There are two options of repayment; either through EMI or Fortnightly.
Coupled with broad redeeming features, there are a host of benefits accruing out of hotel business loan.
- Cash Flow: It streamlines the flow of cash and thus provides ample liquidity.
- Ownership Remains Intact: The absence of collateral in this unsecured loan makes one free of additional worries.
- Improved Credit Score: Accurate reporting to various credit rating bureaus helps enhance credit score integrity.
Eligibility Criteria:
The bare essentials defining the eligibility criteria of business loan for hotel purchase can be tabulated as under:
- The business must be operational for an uninterrupted period of 6 months.
- The turnover should be minimum Rs.90000 or more for 3 months preceding the loan application.
- The business must not be included in the blacklist for finance.
- The location of the business must not be in the restricted category list.
Documents Required:
Hotel loans can be extended to Proprietor, Private Limited Company, Limited Liability Company or Partnership Company. Accordingly, the documents required for the different entities are summarized as:
- Address Proof of the business.
- Business Registration Proof: Any of the following are accepted as valid:
- Business Registration Certificate
- GST Filing
- TIN 7
- Trade License
- VAT Registration
- PAN card of the Proprietor and Business / Company, if applicable.
- Aadhaar Card of the Proprietor
- Copy of Partnership Deed.
- Bank statement for the previous 1 year.
- ITR if the loan amount exceeds Rs.10L
Steps to Consider Before Applying for a Hotel Loan
Before applying for hotel or restaurant loans, it is crucial to plan carefully to ensure success. Here is how you can approach the process:
- Understand Your Needs: First, determine why you need the loan. Whether it is for renovations, purchasing new equipment, or expanding the property, knowing your goals will help you select the right loan product.
- Choose the Right Lender: Different lenders have different advantages:
- Banks: They usually offer competitive interest rates and flexible repayment terms. However, for asset-free loans, banks may not be the best choice.
- Micro-Lenders: These lenders provide small, short-term loans. They can be helpful for newer hotels without a long operational history.
- Online Lenders: Non-banking financial companies (NBFCs) like Lendingkart provide quick loans with faster processing times, often within 24 hours. However, the business loan interest rate may vary based on your requirements.
- Evaluate Loan Types: There are different loan structures to choose from:
- Term Loans: These are one-time loans for a fixed period, which can be secured or unsecured.
- Credit Lines: This option allows flexible borrowing as needed, but interest rates can be higher due to the flexibility.
- Invoice Discounting: A short-term option for hotels that need to manage cash flow from delayed payments by selling invoices to lenders.
- Merchant Cash Advance: This type provides quick access to funds based on your hotel’s credit card sales. This makes it a fast way to secure operating capital.
- Verify Your Eligibility: Understand all the specific criteria that you need to ensure your hotel finances.
- Be Aware of Processing and Closing Fees: Loan processing fees and closing charges vary by lender. It is essential to clarify these details before applying. Additionally, compare interest rates and repayment terms to choose the best loan option for your hotel.
How to get a loan for a hotel business in India?
The online procedure of loan application in Lendingkart can be summarized in the following simple steps.
- Submission of Application: Invoke the appropriate tab in the portal and populate fields with personal, business, and proposed loan details to complete the process.
- Upload Documents: Documents in the digital format is to be uploaded next.
- Evaluation and Sanction: The application and submitted documents are evaluated and accorded sanction if found in order.
- Disbursal: The loan amount is credited to the account.
Fees and Charges:
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Fees and Charges to be paid for Hotel Loan |
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Rate of Interest |
Hotel loan interest rates in India Starting from 1.25% per month |
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Amount of Loan |
Up to Rs.2C – check with hotel loan calculator for quantum of loan eligibility |
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Processing Fee |
2 to 5% Onetime |
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Pre-Closure Fee |
Pre-closure charges are applicable as per the lender’s policy |
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Tenure |
Up to 3 years |
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Repayment |
In EMI or Fortnightly |
Conclusion
Securing the right hotel loan can be the key to extending your hospitality business. It can be for refinancing, consolidating debts, or funding new projects. By understanding the various types of loans, their eligibility criteria, and lender options, you can make informed decisions that best suit your financial goals. Carefully evaluate your needs and choose a loan that offers flexibility and competitive rates. Ensure you have all necessary documentation ready to streamline the application process. For reliable and fast hotel loans, Lendingkart offers tailored financing solutions designed to support the growth of your hotel business.
Hotel Loan FAQs:
1. What are the types of Hotel Loans in India:
The different types of Hotel Loans offered to the borrowers in India are:
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2. Can I get a loan to buy a hotel?
Yes, you can secure hotel financing through various channels, such as business loans for hotel purchases, hotel construction lending, or specific hotel loans. Lenders typically consider factors like your creditworthiness, business plan, and the hotel’s financial viability when assessing eligibility. Explore loan options from banks, credit unions, and specialized hotel financing institutions.
3. What is the interest rate on the loan, and is it fixed or variable?
The interest rate on a hotel financing loan can vary depending on factors such as creditworthiness, market conditions, and lender policies. It may be fixed or variable. To determine the specific rate and terms for a hotel loan, it’s best to consult with a lender specializing in hotel construction lending or loans for the hotel business. At LendingKart, Hotel loan interest rates Starting from 1.25% per month.
4. What is the loan term, and are there any prepayment penalties?
The loan term for hotel financing, whether it’s for purchasing, construction, or business needs, varies but typically ranges from 5 to 25 years. Prepayment penalties may apply, so it’s crucial to review your loan agreement for specific terms and conditions related to early repayments.
5. How does Invoice discounting work in India?
Loan to the extent of 90% of the invoice value is provided immediately to ensure liquidity.
6. What does Line of Credit Mean?
It is basically an Overdraft Facility where a borrowing limit is specified, and interest is charged only on the credit amount and not on the limit.
7. How does Advance against POS sales work?
The lender ties up with the POS service provider and based on the sales volume in the POS, an advance is furnished on future receivables.
NOTE: No processing fees are being charged by Lendingkart before disbursement of the loan amount. Any individual claiming otherwise must not be entertained. Please report such activity on 