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Hotel Financing Made Easy With SBA Hotel Loans

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Title: Hotel Financing Made Easy With SBA Hotel Loans


1
HOTEL FINANCING MADE EASY WITH SBA HOTEL LOANS
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The good news is there are numerous hotel
financing options for aspiring hoteliers. The US
Small Business Administrations loan programs
serve aspiring business owners like you to catch
on SBA hotel loans at competitive rates and terms
to help grow your hotel businessmaking your
grand opening possible. Here is everything you
need to know about SBA hotel loans and how can
you secure them for your business. First, lets
dive into what an SBA hotel loan is and the
different loan types available.
  • Starting a hotel business is a massive
    undertaking. There are so many things involved
    from technology, staffing to hotel brand
    communication and maintenanceand securing
    business financing is just one big piece of it.
    Managing services like front desk, housekeeping,
    marketing and sales require capital, which is why
    financing is so important.

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  • What Is an SBA Hotel Loan?
  • SBA hotel loans are financing programs offer by
    the US Small Business Administrations for
    building, buying, renovating, purchase, or
    refinancing a hotel business.

The SBA doesnt directly lend to businesses,
Instead, they partner with a network of lending
platformsincluding banks, alternative lenders
and nonprofitsto guarantee up to 85 of the
loans proceeds, making funding access easier for
borrowers.
This arrangement permits lenders to approve quick
funding for borrowers that may not otherwise able
to secure capital due to the high risk involved
in small business lending.
4
  • Types of SBA Hotel Loans

Though, the US Small Business Administration
doesnt offer any specific hotel financing, but
SBAs two most popular loan programsthe 7(a)
loan program and the 504 loan program are
applicable to cope with the most common financing
needs of hotel businesses.
  • SBA 7(a) Loans
  • SBA 504/CDC Loans

5
  • SBA 7(a) Loans

This loan program is the most desirable and ideal
funding solution for hotel businesses due to its
lower interest rates and flexible repayment terms
with cash up to 5 million. The SBA 7(a) loan
program can be used to fulfil almost any hotel
financing need such as acquisitions, working
capital, renovations, commercial real estate,
construction, and more. Heres an overview of the
SBA 7(a) loan program
Loan Amounts
Up to 5 Million
Maximum SBA guarantee
85 for loans up to 150,000 and 75 for loans
greater than 150,000
Interest Rates
Maximum of 2.75 Prime Rate (between 5-10)
Fees
Possible guarantee fee of 0 to 3.5, based on
your loans maturity and guaranteed amount
Repayment Terms
Based on loan types (7 years for working capital
loans, 10 years for equipment loans, and 25 years
for commercial real estate loans)
Turnaround Time
5-10 business days
Forms
SBA Form 1919 and SBA Form 1920 along with some
other SBA Forms
6
  • SBA 7(a) Hotel Loan Benefits

The major benefit is low down payment of only 10
in some cases
Because of the SBA guarantee, lenders will be
flexible in the underwriting process regarding
expertise, cash flow, credit standing, quality of
real estate, etc.
Easy refinancing at 1 prepayment penalty after 2
years and with no penalty after 3 years
Available for any business purpose including
partners buy out, working capital, property
renovations, debt consolidation, etc.
Fully amortization over 25 years with no balloon
7
  • SBA 504/CDC Loans
  • SBA 504 loans are considered complex, but still
    an attractive option for hotel financing because
    of fixed interest rates and higher loan amounts.

The SBA 504/CDC Loan are created long-term and
low-interest by combining a loan from a
non-profit Community Development Corporation
(CDC) with a loan from a bank lender. With the
assistance of community development relationship,
SBA 504 loans are easily available to hotel
borrowers. There is a caution with an SBA 504
loan it can only be used for specific business
purposes such as purchase of long-term, fixed
assets for expansion or to refinance large
equipment and/or owner-occupied commercial real
estate.
01
Loan Amounts
Up to 5 Million
02
Typically 5 to 6 (below market rate and are
fixed for the life of the loan)
Interest Rates
03
Roughly 3 of loan value can sometimes be
financed into the loan repayment plan
Fees
04
Repayment Terms
10, 20 or 25 years
05
A low down payment of 10 in most cases
(conserves your working capital)
Required Equity
7
8
  • SBA 504 Hotel Loan Benefits

An ideal financing option for hotel construction
financing(especially for larger construction
projects between 5 million to 20 million) or
for high loan to value refinances up to 90.
Fixed rates for both the first mortgage (for at
least 5 years) and the 2nd mortgage (for at least
25 years)
A 30-years amortization on the first mortgage
You can finance multiple hotels via SBA 504 Green
program
Its competitive, offer fixed-interest rate
without any future interest rate fluctuations
You can refinance existing debt related to fixed
assets
The little down payment of 15 if you are
expanding an existing business.
9
  • Common Uses for SBA Hotel Loans
  • The terms of the SBA Hotel loans based on the
    loan type and the exact nature of projected
    business deal.

Fore refinancing, you can get SBA 7(a) loan with
terms up to 25 years, allowing additional cash
flow for working capital needs. In order to
qualify for SBA 7(a) refinancing, you must prove
that your existing hotel loan carries absurd
terms, like a balloon maturity, an excessive
interest, or an interest only period. These terms
can be complicated to circumnavigate and are
often calculated individually, so you should
interact directly with an approved local 7(a)
lender to check your qualification.
For new hotel construction on a raw or
underutilized land, you can get SBA 7(a) for up
to 80 to 85 of estimated purchase and
construction costs. In this scenario, the
borrower should have high personal credit and put
up personal collateral, because the lender is
investing more than the existing value of the
property.
For hotel acquisition, most lender fund up to 90
of the property value plus any extra asset value
for the business. The SBA loan process is length
is its advisable to submit the application early
on in the negotiation process so as to secure
funding before a new buyer jumps in.
10
  • How Do SBA Hotel Loans Work?
  • Regardless of your hotel financing needs, the
    accessibility and terms of most SBA hotel loans
    will based on the following key factors

Purchase Price or Property Value
Going Concern Value
Loan-to-Value Ratio
Borrower Injection
Additional Collateral
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Purchase Price or Property Value
Loan-to-Value (LTV) Ratio
Going Concern Value
Lenders use this ratio to represent the ratio
between the principal loan amount and the total
value of the property being purchasedusually for
commercial real estate or business acquisition
loans. Most lenders generally consider a maximum
LTV of 85 to 90, with the accurate LTV reckoning
on the borrowers financial history and
inclination to obtain the loan with collateral.
The land and building combine represents the
majority of fixed assets, and the property value
will largely direct the loan amount available. If
youre using SBA hotel loan for an acquisition or
purchase of a commercial real estate, the loan
amount will typically be 85 to 90 of the real
estate purchase price. For refinancing or new
construction, the loan amounts will be limited to
a maximum of 80-85 of the total property value.
The going concern value is value of the business
over and above the base property value and it
applies mostly to hotel acquisitions. Usually,
the going concern value will elucidate a maximum
of 10 to 20 of the total purchase price.
Borrower Injection
Additional Collateral
Lenders want to see your skin in the game. Which
is why they want to have a borrower
injectionoften called a SBA loan down payment of
10 to 15 of the loan amount. The purchase price
of the property include the loan principal plus
the borrower injection for commercial real estate
or business acquisition loans. Again, the
borrower injection amount on any loan will
depends on the borrowers financial history and
the availability of outside collateral.
SBA hotel loans are secured by the property
itself, being it a major benefit to finance a
property purchase or hotel acquisition. Borrowers
dont have to sign any personal guarantee or put
up personal collateral. With that said, providing
additional collateral can help increases the LTV
ratio and lower the borrower injection required
up front, thus lowering the cash requirement.
12
  • Steps to Secure SBA Hotel Loans
  • Here are few steps you should take to help you go
    about submitting your SBA loan application and
    getting funds in hand quickly

The first step is to determine your borrowing
needs. In order to identify it, you need to
understand your property value, how much you can
afford and what SBA loan programs suits your
needs best.
Calculate 90 of your property value to conclude
the maximum loan amount youll likely be approved
for.
Consider how much you can contribute upfront
along with affordable monthly payments to
conclude whether you can afford a loan equal to
your considered property value.
Deciding which loan option is more suitable to
your needs. The selected loan option will govern
the intermediary lenders you can work with to
some extent. Therefore, youll need to make the
selection before moving forward with the loan
process.
13
The next step is to validate your qualifications.
In conjunction with being a registered business
in US with less than five hundred employees,
there are other things that lenders underwriter
to determine your qualification for SBA hotel
loan. Here are five key things you should ponder
on
You need to have your property appraisal
independently to validate the property value. If
the appraisal value is significantly lower than
the asking price, you might need to put up
collateral or negotiate with the seller to
reconcile the difference.
For hotel acquisition or new construction, your
personal credit history is take into
consideration as an essential factor into the
SBAs decision. You might get approved at a lower
score, but a credit score of m is considered
good and highly qualified.
In order to get quick approval for hotel
financing, youll need to show willingness by
contributing upfront cash between 10 to 30 of
the total loan amount.
Although, SBA hotel loans dont require borrowers
to put up collateral, but having additional
collateral ready can count in your approval for
hotel loansespecially with poor personal credit
history.
You need to have a strategic business plan along
with the capability to accomplish it. While
having a business plan will not guarantee the
approval, still it shows your commitment and
demonstrate that you can be trusted with their
investment.
14
The final step in the SBA loan application
process is gathering of arduous and
time-consuming paperwork. Here is a list of
documents you should collect for SBA as well as
for intermediary lenders
Drivers license
Property tax returns
Voided business check
Personal tax returns
Business plan
Bank statements
Balance sheet
Property listing, purchase agreement, or deed of
trust
Profit loss statements
Business debt schedule
Business tax returns
15
  • The Bottom Line

After reading through this, we hope youre ready
to submit your SBA loan application! The only
thing left for now is to wait. Even with
everything line up perfectly, its usual for the
SBA to request for some additional documents or
information. The key here is to stay patient and
address any issues or questions serenely and
supportively.
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