Financing a Travel Agency
Many people are under the assumption that brick and mortar travel agencies are dead thanks to online travel agencies (OTA’s) like Expedia and Priceline – but the statistics show a much different story. The travel agency industry took a nosedive after a few specific events: 9/11, the Great Recession, and the evolution of the internet for online travel. However, 2013 was a major turning point for the travel agencies that survived those events. Travel agencies are now generating over $146 billion in annual travel sales, while employing over 75,000 people. Many American’s today are looking for niche experiences without all of the hassle of dealing with airlines – because we all know how tedious and frustrating that can be. The brick and mortar travel agency industry is not dying; today, more and more people are flocking to these travel agencies to create an easy, stress free, one of a kind travel experience. Even though things are looking up for travel agents everywhere, in order to stay ahead of the OTA’s and their fierce competition, there are plenty of industry trends that need to be incorporated into brick and mortar travel agencies.
Travel Agency Trends
- Focusing on Top Clients/Luxury Travelers: Luxury travelers are often the top client already for most brick and mortar travel agencies; luxury travelers are also the clients that come armed with a larger budget, as well as looking to create a valuable, long term relationship with a travel agent. Luxury travelers do not care as much about the most affordable flights. Most often, luxury travelers are looking for an overall great experience while delegating most of the tedious work of trip planning to the travel agent. By focusing on these top clients and making sure to reach out regularly to these clients to keep a steady, long term relationship going, brick and mortar travel agencies can keep a steady influx of profits.
- Focusing on Corporate Travelers: In addition to luxury travelers, travel agencies working on reaching out to regular corporate travelers will see a more diverse customer base willing to use travel agencies over online travel agencies. This demographic is a double edge sword though. In the past, there were many corporate travelers, but thanks to the evolution of the internet and telecommuting, there has been a decline in the number of corporate travelers today. While there is a decrease in the number of corporate travelers today, there is still a lot of corporate travelers around that would be willing to use a traditional travel agency over an online travel agency.
- Reaching Younger Generations: This is a major demographic that businesses across every industry are trying to figure out how to cater to. With the travel agency industry in particular, there has been a major increase in the amount of business from younger generations. A report released by L.E. Hotels showed that 51.5 percent of travel agents saw an increase in Millennial clients, making up over 25 percent of their new business clients in the past two years. Travel agencies must stay relevant and up to date on their marketing strategies to reach this generation – they could be the key to increasing profits for the travel agency industry.
- Adventure and Experience Travel: This is a major demand from younger generations. They are all about adventures, experiences, and having a great time. Today, younger generations do not want to be tourists – they want to be travelers who experience different cultures, foods, and ways of living. Focusing on more unique travel destinations and experiences, especially if the client is younger, is essential.
- Social Media and Online Presence: Social media and a successful online and mobile website is essential in every single industry today. For an industry such as travel agencies that is struggling to gain momentum again, creating an effective social media presence and marketing strategy could do wonders for business.
- Virtual Reality Tours: Technology has been the bane of travel agencies existence, but creativity and innovation has turned the tables. Brick and mortar travel agencies are starting to offer a unique, luxury virtual reality touring system for clients who want to experience the cruise ship or hotel first hand. This is a major niche that OTA’s cannot offer, so making sure to invest in niche product to make a travel agency more appealing will help increase profits.
When Would a Travel Agency Need Financing?
- Marketing and social media is crucial in today’s business environment, especially in the travel agency industry; the biggest struggle for most travel agencies is the fight against online booking agencies. Consumers are heavily reliant on doing first hand research of everything; they look at social media presences, customer reviews, and reliability of a travel agency all before deciding to actually visit and purchase a service from the travel agency.
- New equipment and top of the line technology should be at the forefront of every travel agency owner’s mind. With the overwhelmingly significant impact that technology has had on the travel agency industry, staying ahead and up to date on every piece of technology is essential for a travel agency to thrive; this could be new Point of Sale systems, other booking databases for traveling purposes, or new virtual reality touring systems. Whatever the new equipment is, there are plenty of merchant loan options available to cover these expensive up front fees.
- Expansion is always an exciting topic for a travel agency business owner that is doing well, but having enough up front capital to cover an expansion can be difficult, even if everything else is in order and ready for expansion. That does not have to deter a successful travel agency owner from stopping their business expansion though; reviewing the variety of loan options available to travel agencies can help.
- Renovations are key to staying up to date and trendy for travel agencies that are trying hard to compete against the online booking agencies. In a society dominated by first impressions, making sure that the brick and mortar retail store front for the travel agency is relevant and engaging to the desired customer base is essential. While not all renovation that can be done is overly expensive, sometimes situations arise that warrant the need for additional funding to facilitate and complete a much needed change; reviewing the different funding options available to travel agencies is always a possibility.
- Payroll is a necessity for most small businesses today, but sometimes covering this unavoidable expense can be difficult, whether it is due to a slow sales period or an unexpected emergency situation, there are many financing possibilities that can help cover payroll costs. As mentioned in other posts, when business is slow, not covering payroll costs is the absolute last thing any travel agency owner should do – if a small business owner cannot facilitate an environment where the employees are held in high regards, then they will not produce effective work.
- Miscellaneous fees and taxes can also be a nuisance for any small travel agency that is still growing their business. With the help of additional funding options, it can be possible to cover miscellaneous business fees that cannot be covered during that time.
Types of Travel Agency Loans
| Types | Rates | Terms | Funding |
|---|---|---|---|
| Bank | 6-10% | 3-7 years | 14-30 days |
| SBA | 6-10% | 3-7 years | 10-30 days |
| Line of Credit | 5-15% | 1 – 3 years | 7-30 days |
| Alternative | 6-25% | 1-5 years | 5-7 days |
| Cash Advance | 1.16-1.55 | 3-24 months | 1-3 days |
Travel Agency Bank Loans
Conventional bank finance options and lines of credit are the best financing option for every travel agency, assuming your business has great credit and enough documentation to meet the strict requirements. Conventional loans are especially useful since they can be used for a wide range of uses, including commercial real estate, working capital, capital improvements, etc. .
- Rates: 5-10%
- Terms: 1-25 years
Alternative Travel Agency Loans
Fintech loans are alternative finance options for your travel agencies that don’t quote meet the SBA and conventional lender’s requirements and criteria. While they don’t offer as low rates as banks, they offer affordable financing with a hasslefree approval and funding process.
- Rates: 9-25%
- Terms: 1-5 years
Travel Agency Cash Advance
If your travel agency lacks good credit or sufficient documentation to obtain other loan possibilities, considering a merchant cash advance or ACH loan may be your only other option. MCA and ACH advances are the sale of your agency’s future revenue in return for immedate cash financing. Repayment is usually made daily, with the payments coming directly from your credit card processing account or from your business bank account.
- Factor Rates: 1.16-1.50%
- Terms: 4 months – 2 years
