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Recently, there has been a significant amount of media attention on the credit crunch, namely on how it has impacted corporate conglomerates. But smaller businesses also are affected because of their reliance on outside sources of financing. And use of personal credit to maintain their day-to-day operations greatly exceeds that of larger businesses.
According to a recent survey conducted by the National Small Business Assn., when businesses cannot obtain financing, 40 percent of them will decide against expansion-related expenses. Entrepreneurs are now forced to rethink their spending, and many of the planned expansions, renovations, upgrades and relocations of their businesses are being postponed.
Most hotels generally conduct some form of renovation every five to seven years. Doing so ensures the facilities will satisfy the franchisor's brand standards. However, in these economic times, hotel owners are expressing two important concerns about compliance with brand standards because they need funding to renovate their properties. The first concern arises because many owners with good credit are experiencing difficulties obtaining necessary loan approvals. The second concern is that many hotel owners planned to renovate their hotels upon receiving the necessary loan approvals, but discovered at the last minute that lenders changed their minds and refused to fund the loans.
What is a franchise hotel owner to do in either situation?
First, the franchisee should consider finding alternate sources of capital, such as the U.S. Small Business Administration's 504 Loan Program. This is principally suited for business owners who plan to renovate their facilities. Some advantages of the SBA loan program are low interest rates, low down payments and fixed rates that will not change during the term of the loan. Another option to consider is private lending services that enable business owners to borrow competitively from an individual lender.
Second, the franchisee should strive to develop a close working relationship with the franchisor to evaluate temporary solutions. Franchisors should not demand that the franchisees spend unnecessary money or jeopardize their financial stability to comply with a renovation deadline that can be postponed until the economy improves.
For renovations requiring immediate attention, franchisees should research ways to save on renovation expenses by defining the entire scope of the project, seeking input from other hotel operators who managed a similar project and selecting general contractors who offer the necessary experience and reasonable rates to complete the project.
Ashwin "Ash" Patel is 2008 chairman of the Asian American Hotel Owners Assn. Contact him at (404) 816-5759 or visit www.aahoa.com
