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Key Financing Options for Hotel and Boutique Owners

  • Highlights

  • Know the general costs associated with hotels and boutiques

  • Learn about financing options for hotel and boutique owners

  • Know the advantages of equity and debt funding

  • How a business loan can help hotel and boutique owners

Hotel and boutique owners can borrow funds to leverage their business’ financial needs. Major costs associated with boutique and hotel owners are rent for leased space, renovation, utility bills, machinery, fixtures and interiors, and marketing. Inventory, machinery upgrades/repair, business insurance, and payroll add up to other daily operational expenses.

Small businesses such as boutique owners and hotels have various borrowing options to choose from, and each of them has their advantages depending on the context.

Let’s Explore the Key Financing Options for Hotel and Boutique Owners

1. Equity Funding

Some of the main routes of financing through equity are an angel investment network, and private equity.
-An angel network entails investment by a private or business investor who shows akeen interest in the specific business model. Another popular equity option is venture capitalism. Venture capitalists extend funding support to businesses that are deemed to have high growth potential.

However, the funds are made available in lieu of ownership equity, leading to equity dilution. Finding an investor in the specific domain requires thorough research which can be time-consuming. A strong business model is required to close the deal.

-Private equity (PE) firms buy 100% ownership of the companies which they support financially. These companies are generally in the mature stage, where business models have lost steam, and the profits have started dwindling.

2. Debt Funding

Debt funding is the most sought-after financing option by small businesses. These options include loans from various government organizations, a P2P network, term business loan and Flexi Business Loans.

SIDBI, NABARD,and NSIC are few of the government institutions providing loans to small businesses. These can be both secured and unsecured loans. The Indian government has launched a scheme called Pradhan Mantri MUDRA Yojana (PMMY), also called MUDRA Loan. Their regulatory requirements are strict and may be time-consuming.
-Term loans have been the traditional form of borrowing funds. They help to cover both the short-term and long-term business needs. The term loan interest is calculated on the whole loan amount. Their EMIs include both the principal and the interest component, making the monthly payouts burdensome. These loans sometimes require collateral and they involve a strenuous approval process.

-Peer-to-peer (P2P) lending is slowly gaining prominence in India. As per RBI, P2P lending is a form of crowdfunding where unsecured loans are issued to borrowers via an online portal. According to Plunge Daily reports, the P2P industry is going to reach USD 4-5 billion in the next few years. The choice of the P2P platform and their authenticity is vital.

How To Get Small Business Finance From Bajaj Finserv

Flexi Business Loans are another way for borrowing funds for hotels and boutique owners. They offer a flexible loan limit, where businesses can borrow funds as per their requirement without borrowing the whole approved loan. This allows them to pay interest only on the borrowed finance rather than the whole loan amount. Secondly, the EMI component of the Flexi Business Loans has an option to include only the interest component. The principal amount can be paid at the end of the loan tenor.

Boutique businesses cater to niche target customers, and might take time to generate profits. The hotel business turnover is also cyclical and may see income fluctuations. Flexi Business Loans which allow the businesses to repay the principal at the end of the tenor is highly recommended for boutique owners and hotel businesses. They can only pay the interest amount for the EMIs.

For example, a Flexi Business Loan of Rs. 30 lakh is availed for a tenor of 3 years. However, only Rs. 10 lakh is withdrawn as a loan. The EMIs would come to Rs. 12500. Rs. 10 lakh can be repaid at the end of 3 years. In case of other business term loans, the interest would have been calculated on the whole loan amount of Rs. 30 lakh. EMIs for 3 years include both the interest, and the principal and would amount to Rs. 1.2 lakh approximately.

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