The Covid-19 pandemic led to a sharp slowdown in the global economy and hurt the growth of almost all businesses worldwide. In particular, the tourism industry and its related businesses like aviation, hotel and transport witnessed a sharp plunge in revenue and cash flow due to movement restrictions.

Indeed, many hotels and restaurants slumped into losses and struggled to sustain their operations. And many eventually shut down operations as they didn’t have enough working capital for day-to-day activities.

During such times a working capital loan from a bank or a reputed non-bank lender like IIFL Finance would have helped the hotels and restaurants to keep the fire burning.

What Is A Working Capital Loan And When To Take It?

A working capital loan, as the name suggests, is a loan that allows a business to meet its day-to-day operations. These activities could include salary payment to employees, or paying vendors for goods and services purchased.

Although the loan amount, tenor and other terms differ from lender to lender, working capital loans are typically of a small size and for a smaller duration ranging from a few months to a couple of years.

Such loans help especially those businesses which face irregular revenue or cash flows or deal with seasonal business cycles and may require some extra money to bridge the gap between receivables and payables.

Working capital loans can also help businesses meet a sudden rise in demand for their goods or services, such as during festive seasons, when they need additional money in hand to buy raw materials or pay vendors in advance.

Benefits Of Working Capital Loan For Hotels And Restaurants

A working capital loan can be beneficial for restaurants and hotels because of the following reasons:

• To deal with longer payment cycles:

The operating cycle of a company is the time it takes to buy goods, build an inventory and receive cash from the sale of the finished goods. A shorter operating cycle means the company has enough cash to maintain operations and meet its financial obligations
However, for hotels and restaurants the operating cycle can be longer since they have to keep enough inventory of food and non-food products. It means less cash in hand to maintain regular operations

• To meet short-term needs:

Wages of employees, training expenses, food and beverage costs as well as utility costs are some of the obvious costs that need to be accounted for in a hospitality business. These expenses must be met on a regular basis, even if revenue generation takes time

• To manage unpredictable revenue cycles:

A proper revenue management system means higher cash flow, more money in the bank and a return on the capital. But during critical times like the pandemic, this cycle can be unpredictable. A working capital loan can be useful at such times

Why IIFL Finance For Working Capital Loan?

IIFL Finance offers diverse financing choices to micro, small and medium-sized enterprises, including hotels and restaurants, to construct new properties or renovate an old one.

At IIFL Finance, one of India’s biggest non-banking finance companies, hotel and restaurant owners can choose from different business loan products depending on the size and structure.

The company charges competitive interest rates and offers flexible repayment options that can be customized according to the borrower’s revenue or cash flow cycles. The loan tenor typically ranges between 12 and 60 months. Moreover, secured loans of up to Rs 10 crore can be taken for a tenor of up to 10 years.

To keep the process simple IIFL Finance requires just a few documents like bank statements, identity proof and address proof to approve the loan. A GST registration certificate is required for unsecured loans greater than Rs 10 lakh but under Rs 30 lakh. Borrowers who have property to put up as collateral can get loans of up to Rs 10 crore.

In addition, IIFL Finance facilitates quick loan disbursement to help borrowers meet urgent cash requirements and run their business successfully. IIFL Finance has also launched an instant business loan option on WhatsApp.

Conclusion

After months of stagnancy, the tourism and hospitality industry is recovering, and hotels and restaurants are getting back on their feet. Still, managing working capital can be difficult as the industry hasn’t reached pre-pandemic levels and the threat of another disruption can’t be ruled out completely.

Rising healthcare and hygiene-related expenses as well as increasing digitization add to the costs. In such situations a working capital loan from a well-known lender with nationwide reach like IIFL Finance can be extremely useful.

IIFL Finance not only offers superior customer experience with an emphasis on digital services but also promises quick approval and disbursal of loans with minimal procedures and paperwork.

Further, borrowers with urgent cash requirements of up to Rs 10 lakh can even apply via WhatsApp and get their KYC verification done digitally in just a couple of minutes.