OYO to offer hotel partners up to Rs 20 lakh instant collateral-free advances

In an industry first move, South Asia's largest chain of branded hotels and homes OYO has started issuing collateral-free instant advances to hotel asset owners looking to raise money for renovating their properties in India. Christened Cash in Bank (CiB) facility, the scheme has been introduced under its ongoing OYO Partner Engagement Network (OPEN) initiative.

The hotel chain had earlier earmarked an investment of Rs 1,400 crore in its India and South Asia business comprising over 9,000 hotels across 260 cities in India. It will use proprietary money to dole out the funds under the CiB facility that will be processed within 48 hours without any collaterals. OYO has fixed Rs 20 lakh as the upper limit for advances being offered to the hotel asset owner. However, to avail this funding, hotel asset owners will have to submit six post-dated cheques (PDCs) as security.

For a fortnight now, OYO has been running a pilot of this scheme to gauge the market response in a select few cities like Mumbai, Delhi and Bengaluru. Based on the feedback, it has now opened the financing scheme to all hotels added in its network over the last couple of months. Additionally, existing property owners holding a franchise of OYO Rooms, Spot on and Capital O brands will also be eligible to seek the instant advances.

Aditya Ghosh, CEO, India and South Asia, OYO Hotels & Homes, said the CiB facility is a direct outcome of the company's engagement with the asset owner partners under the OPEN initiative. "We realised the need for providing a quick and hassle-free financing product to cater to their expansion and renovation needs. We believe this product has the potential to be a game-changer for our asset owners and elevate their relationship with us," Ghosh said in a media statement.

While no numbers have been shared, DNA Money has learnt that OYO has already received over 400 applications for the CiB facility and approximately 50% of them have been processed as well. The amount sought by asset owners ranges between a couple of lakhs and Rs 20 lakh and, the average ticket price is said to be around Rs 5 lakh.

According to Ayush Mathur, chief supply officer, OYO Hotels & Homes, availing the CiB facility by the hotel asset owner/partner is totally voluntary in nature. "They can also decide the repayment tenure during which they will have to incur additional cost of between 8% and 18% over and above the franchising fee they pay to OYO. There is no hard and fast rule on the incremental fees because there have been cases where the incremental outgo is just 2% in addition to the franchising fee," Mathur told DNA Money.

On how much incremental revenue OYO is expecting to generate for itself from this initiative, a company spokesperson said this is a completely voluntary offering and is meant to assist and provide necessary financial support to those desirous of renovation and upgradation facilities.

"We have data to believe that asset owners can offer improved customer experience and thereby increase demand and create repeat customers by investing in a renovation. This will further help increase yield and revenue for the asset owner. Our franchise fees will continue to remain a percentage of the overall revenue. We are not looking at this as a direct revenue stream," the spokesperson said.

Hotel asset owners with whom DNA Money spoke to indicated that the instant advances scheme is very expensive to avail of and will not be beneficial given the increased costs associated with it. However, OYO believes that the views expressed are anecdotal and a premature evaluation based on isolated views.

"We have already seen a significant number of inquiries given the pilot we conducted a couple of days ago. This is a completely voluntary facility being offered to asset owners and the intent is to help and provide an additional collateral free, business advance. This collateral-free, minimum documentation-based quick disbursal-focused business advance offering is a first-of-its-kind initiative in the hotel industry and signals the deep and growing commitment and trust within our asset owner community," said the OYO spokesperson.

Hotel asset owners have also been complaining about OYO significantly underpricing their hotel room inventory, thus killing their business. In response, company spokesperson said the success of the asset owner and OYO depends on their ability to consistently deliver a great customer experience by providing affordable, quality accommodation and warm hospitality.

"Unfortunately, some of the allegations that have been levelled stand to hamper the very customer-friendly approach that helps asset owners generate more business than peers and are neither in the best interests of the asset owners or more importantly, the customers that we hope to serve. We continue to see a direct and repeat customer rate of approximately 90% and are able to ensure significantly high occupancy levels for hotels that become a part of the OYO family," the spokesperson said.