Hospitality industry is a viable
sector of the economy that requires heavy funding for take-off and management of
it doesn't come cheap either. Prospective investors must be wary of this key
factor and the elongated gestation period of new hotels. If you are looking for
quick and immediate returns on your investment, you may have to stop reading
this piece and start trading. Whether you are going to buy a property and
convert; build from the scratch or lease an hotel; one constant factor that is
applicable to all is funds.
In a business growth forum this
week organized for its customers in the hospitality sector, the Group Managing
Director/Chief Executive Officer. Access Bank Plc, Mr. Aigboje Aig-Imoukhuede
said among other things that the bank is committed to funding the hospitality
industry. He went further to state that the capital intensive nature of the
industry and the lack of trust in the hotel employees as the challenges of the
industry. The motive of this piece is not to challenge the residual knowledge
of the GMD/CEO but to look at the positives that we can take away from the
business forum. First, a disclaimer -the only
relationship I have with Access Bank is an un-serviced savings account and
while consulting for a client on the island last year Access Bank provided fund
for the elaborate project. Now, to more serious issue, the bank must be
commended for taking this initiative of singling out the hospitality sector for
this privilege even though it comes at a cost.
Before you rush off to the
nearest branch with your hastily prepared business plan, pause and let us
reason together. The challenges in the industry are not just limited to
mistrust of the employees as propounded by the erudite banker. In fact that is
the least of my worries when it comes to funding. The commonest challenge that
is being gradually attended to is that of fund diversion. Once facility hit the
account that is solely controlled by the owner, it becomes a herculean task
getting such owner to stick to the tenets of the business plan and not divert
such fund with the excuse that same fund will be provided for much later as
work progresses. I have also practically experienced situations where quality
and safety are sacrificed during procurement so as to either make extra savings
or make up for over budget. The panacea for this is to insist in opening an
operations account that the consultant will be a joint signatory. If the owner
refuses, be careful, there may be other motives.
What is more intriguing is the
role of owners in loan syndication. I did setup for a client up north some
years back and when interviewing candidates for employment discovered that the
owner took facility from two banks. We needed just one person to handle
accounts but owner insisted on two staff. Your guess is as good as mine. The
banks need to protect their facilities and it shouldn't be by seconding their
staff to work in the account section of owing hotel. That is rather primitive
and ineffective. They ought to have a hospitality consultant on call that will
dispassionately look at business plans before the loan is approved in the
first place. Monitor process to ensure that timeline is kept to in accordance
with the proviso in the business plan. Verify assets financing and cross check
cashflow claims. Loans should be released in batches so as not to saddle
the owner with too much interest on loan not needed at a particular period.
Offering business platform and professional advice are all under the purview of
the banks in ensuring that the loan is judiciously used.
Similarly, banks must ensure that
owner has a sound knowledge and practical experience of the industry before
granting loan or he must employ the services of a hospitality consultant as a
prerequisite for facility. On the other side, owners must retain corporate
control and cede management control to the consulting firm on ground. It is
always difficult to separate owners of hotel from their emotional attachment to
their property. Though, there is a positive to take from this attitude provided
it does not go beyond the realm of excitement. I have always believed that the
best judge of a hospitality consultant is not his antecedent; pedigree or
resume as important as those are, the ultimate judge is result.
As a last shot; having a prudent budget,
sound financial projections, capital expenditure plan among other requirements
that differ from bank to bank increases your chances of successful application.
If however you fail the first time, try again with another bank. They are not
doing you a favour, it’s a mutually benefiting arrangement. Good luck.
Patrick Adegbamigbe
Hospitality Consultant
234 80 57736980
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