If you’ve ever walked into a state-of-the-art hotel, you will agree that it is a fund-intensive business. However, that’s not enough reason to discard your dreams of owning one. In this guide, we will be highlighting different ways you could get funding for a hotel business in Nigeria.
Preliminary Work Before Seeking Hotel Business Funding in Nigeria
Before seeking funds for your hotel business, you need to be clear about how much you need and what it is needed for. Some of the essentials you need to do include:
1. Assess the Size and Scope of your Business
This is the first and one of the most important steps before seeking funding. No two hotels have the same funding needs, so you need to be clear on your funding needs from the start. One pointer that could guide you is the size of your proposed hotel. The bigger the size of the project, the larger the capital you will need.
2. Get A Cost Draft For Some Of The Hotel Expenses
Many hotel owners wait till the funds have been approved before doing in-depth research about the amount they really need. This often leads them to get stuck midway through the development process. When preparing to establish a hotel, some of the essentials you need funds for include Land/property acquisition, construction, interior décor, and finishing. You also need to plan for the technology software, licenses and permits, marketing, working capital, staffing, and training.
3. Have a Solid Business Plan
Investors don’t care about how much you believe your business will work; all they care about is a workable business plan. The bulk of your energy should go into ensuring that your business plan is compelling and believable. One of the ways to make your business plan compelling is by using data. Ensure your plan shows thorough research while selling what investors stand to gain by investing in your company.
Top 5 Options for Hotel Business Funding in Nigeria
Nigeria has a wide range of funding options you could maximize for your hotel business. Some of them include:
1. Bank Loans
Bank loans are one of the funding options you could explore for your hospitality business in Nigeria. Their requirements could be very strict and strenuous, but it is a viable option you shouldn’t discard. You will be required to present collateral, your business plan, feasibility study, building plan, and audited financial statement. The only challenge with bank loans is that it sometimes takes a while before your application is granted.
2. Development Finance Institutions
Nigeria has some Development finance institutions that could assist you with funding for your hospitality business. You could approach the Bank of Industry, the Development Bank of Nigeria (DBN), or SMEDAN support programs to get funding for your hotel. Unlike banks, DFIs have a lower interest rate, which makes it easy to return the funds. They also have flexible payment schedules and longer tenors, which reduce the repayment pressure on you.
3. Private and Angel Investors
Several private investors are always eager to fund hotels. You can blame this on the promise of long-term returns and property appreciation. To buy them over, you need a unique concept and a clear profit potential that proves their money is safe. You also need to convince them about the profitability of your proposed location for the hotel.
Before pitching to private and angel investors, you should be aware that involving them requires you to give up sole ownership of the business.
4. CrowdFunding
Crowdfunding is a popular funding approach that has been employed by several hotel owners. There are primarily two types, namely: reward-based crowdfunding and equity crowdfunding. The difference between the types is that the reward-based crowdfunding gives donors perks in exchange for their donation. On the other hand, equity crowdfunding makes donor shareholders in the company. Some of the most popular platforms for crowdfunding in Nigeria include Kickstarter, Indiegogo, GoFundMe, and NaijaFund.
5. Microfinance Banks
Sometimes, it might be difficult to access loans from regular banks because of their stringent requirements. In such scenarios, you could take advantage of Microfinance banks. Microfinance banks offer you more flexibility and are easier to access. They have easier documentation and a faster approval rate than traditional banks. However, their loan limits are quite lower than what you would get from traditional banks.
Common Mistakes To Avoid When Seeking Hotel Business Funding In Nigeria
The essence of other people’s mistakes is for you to learn from them. If you want a lender to take you seriously, ensure you do not make any of the following mistakes:
Underestimating Cost
Many lenders have a portfolio that consists of different investments. They also have friends who are investors, and this exposes them to a lot of knowledge about different investment types. When discussing with them, you need to ensure your prices are as accurate as possible so they don’t poke holes in your pitch. If they sense inaccuracies in your proposal, it will be misunderstood as inefficiency, and they won’t take you seriously.
Pitching Without Research
Before approaching any investor, your groundwork needs to be solid. Ensure you know the figures like the back of your palm so that you can answer all questions confidently. Also, avoid the trap of beefing up your report with stories that are not backed up by statistics. For every conclusion you arrive at, ensure to back it up with well-researched statistics.
Poor Financial Records
Poor financial records are pointers to disorganization and disorderliness. It will make it difficult for the lenders to trust you because they will assume your business is messy as well. Before approaching a lender, it is best to get your financial records in order, even if it means employing the services of professional auditors.
Ignoring The Lender Requirements
It is understandable that the money means a lot to you, but you should also be on the lookout for the lender’s requirements. Are there any documents you need to have? Is there an application process you need to follow strictly? If you apply without adhering to the lending requirement, your application will be flushed down the drain.
Conclusion
Setting up and running a hotel business in Nigeria is a extraordinary task that requires a lot of funding. In this post, we examined the top funding options for hotels in Nigeria and common mistakes to avoid when applying for funding.
