Credit or fundraising to restore my hotel? What’s the best choice?
Restoring a building such as a hotel is a major undertaking. With work often colossal and requiring the intervention of a large number of service providers, it’s important to prepare for the event as well as possible. With a partial or total closure of the hotel and a sometimes high cost, the operation can be facilitated by the acquisition of external funds.
By choosing to raise funds or take out a loan, the professional ensures financial security for the duration of the work. On the other hand, the total cost of the project often exceeds available cash. So, in order to carry out the restoration or add a SPA, for example, it becomes essential to resort to these solutions. But which is better, credit or fund-raising?
How does credit work?
Before we can determine which is the better choice, we need to define each of these terms. Although both relate to obtaining money for the business, they operate in completely different ways. Credit is a request for a loan from a financial institution to the hotelier. In return, the hotelier undertakes to repay the money, with interest, at set intervals. This enables the hotelier to benefit from a massive inflow of cash, which can be returned in small monthly installments.
What is fund-raising?
Unlike credit, which calls on banking professionals, fund-raising calls on all kinds of organizations. The way it works is that several or even dozens of individuals invest in a project. In return for their investment, they receive shares in the company, which they can then hold or resell. The aim is to generate a capital gain when the shares are resold. The hotelier, on the other hand, does not repay in cash, but only in shares.
The advantages of credit
The costs involved in restoring a hotel can mount up very quickly. Between the costs of professional services, temporary closure of the establishment and the purchase of new furniture, the sum can quickly reach an unconsidered amount at the start of the operation. For this reason, a substantial cash flow is required. A bank loan can meet this need.
This solution offers several advantages for the professional. In fact, it ensures that financing is available on time. A banking institution makes a commitment to pay the amount on a pre-defined date. What’s more, the professional is assigned a dedicated advisor who will be able to advise him throughout the process and answer any questions he may have.
Credit: a secure solution
In addition to these advantages, bank credit also offers security. Banks are reliable organizations that are unlikely to undergo major changes during the process. The liquidity of these companies is also assured, so the hotelier can be sure of obtaining his cash flow.
On the fund-raising side
With its alternative operating mode, fund-raising is also a very practical solution. By appealing to private investors, the professional has the chance to obtain larger sums than would have been possible with a loan. Banks lend sums defined by a repayment schedule, whereas an investor can inject any amount into the project. What’s more, investors are often former company directors who can contribute their advice and expertise.
What are the shortcomings of each solution?
Neither solution is without its shortcomings. With credit, you have to repay the money with interest. Depending on the period, interest rates can vary, sometimes reaching significant levels. If this is the case, it can be difficult for the hotelier to make the operation profitable. Fund-raising, for its part, requires convincing profiles by hand. You have to put together a dossier to present the advantages of your project and encourage them to invest. It’s a complicated, technical stage that can sometimes be a real obstacle course.
Credit or fund-raising: which is better?
When it comes to restoring your hotel, the choice depends on your situation. If you have strong expertise in communications and the manipulation of graphic tools, it may be a good idea to try fund-raising, and thus benefit from qualified investors. If, however, you feel that a more secure option would be better suited to your project, we recommend that you contact a banking institution to run a simulation.