SBA Hotel Financing & Refinancing
SBA 504 or 7a financing can be used to purchase, remodel or refinance a hotel or motel and recent changes to SBA eligibility guidelines have made it possible to finance multiple properties as well as larger properties.
New Program For Purchase of Foreclosed or Poorly Performing Hotel Properties
We are offering a new program for
experienced hoteliers interested in acquiring currently foreclosed or poorly performing properties. We will be posting more details soon but here are a few basics:
- Borrowers will need 20% down if they do not currently own any other hotel properties
- Borrowers will need 15% down if they currently own another hotel
- Borrowers must have significant hotel management or ownership experience
- Minor renovations that can be completed within roughly 3 to 4 months can be financed
- FFE can be financed
- Loans will be processed under the SBA 504 program
Please get in touch if you have a transaction like this that you would like to finance: 1-800-414-5285
New "A-" SBA 504 Program For Those Returning to Profitability
We have a new program for Hotel Refinancing and Acquisitions for hoteliers who can show that they have returned to profitability and who fit into the parameters of the SBA 504 program.
This program is specifically for experienced hoteliers whose business has rebounded from the lows of the Recession.
Good candidates are those who meet the requirements for the SBA 504 program and the SBA 504 Refinance Program who possibly lost money in 2008 and 2009, but turned a profit in 2010 and have continued to show positive trends in 2011.
Update: As of June 1st, 2011 there is a "Prime plus" option available for the first mortgage. Loans are priced between Prime + 2% and Prime + 3% depending on risk involved. (This rate is as good or better than many A credit clients are getting from their lenders for SBA 7a Loans and other similar Prime-based programs).
Ideal candidates:
- limited service
- flagged hotels
- primary or secondary market
- loan amount in the $2-5MM range.
Qualifying for the "A-" Hotel Lending Program:
- Credit scores: No minimum score but generally at least 600 (with Letter of Explanation regarding derogatory accounts)
- LTV: Up to 90% Combined Loan to Value (50% first mortgage/40% second)
- Minimum (combined) loan amount: $1million
- Maximum (combined) loan amount: $12 million
- Flag/No flag: Flagged preferred, but will consider independent hotels/motels.
- Interior Corridor Only
- Required DSCR: Prefer 1.25X, but all transactions considered case by case
- STAR reports: Must show Positive trends
- Occupancy: No specific minimum occupancy, but transaction must cash flow
- Leased land: Leasehold, ground leases are possible
- Improvements/Renovations/Upgrade Costs (For Acquisitions): Allowed, but renovations must be completed in approx 120 days
- Financial's/Tax Returns: Must have 2010 business tax returns completed and YTD Financials. (Borrower prepared Financials are OK)
- Rates: Rates are risk-based and there are currently 3 options: Prime plus 2 to 3%, 3 year fixed and 5 year fixed - all with a 25 year amortization. The 2nd mortgage is the "regular" 504 fixed rate 2nd mortgage and fixed for 20 years. Click here for current rate: Current 504 Interest Rate
- Refinance Eligibility: You must be able to meet the SBA's refinance requirements for the 504 program.
Click here for complete refinance eligibility requirements: SBA 504 Refinance
Hotels Are Now Eligible For Refinancing
Refinancing is also available through both the SBA 7a and the "regular" SBA 504 program for those who haven't been impacted by the Recession and the 504 program has a new "cash out" provision that allows for the financing of some business expenses.
Click here for more info on the 504: SBA 504 Refinance Guidelines.
The 7a program is more flexible, but limited to loans of $5,000,000.
And here for info on the 7a: SBA 7a Loan
Finance Multiple Hotels IF 10% More Energy Efficient
A recent change to SBA 504 guidelines has made it possible for hoteliers to access more credit via the 504 loan program.
Specifically, if you currently own a hotel and you acquire or build another property and the new property is 10% more energy efficient than your existing property you can qualify for an Energy Efficient 504 loan which effectively removes the maximum eligibility limits for SBA financing.
SBA typically limits a borrower's eligibility to $5 million in total financing unless you are financing an energy efficient property.
Green and Energy Efficient 504 projects are exempt from regular SBA policies regarding jobs creation/retention and maximum SBA eligibility and the new guideline removes the $5 million cap on eligibility as long as the project being financed is considered energy efficient.
Finance Numerous Properties With SBA Financing
In other words, SBA will now calculate maximum eligibility on a "per project basis" which makes it possible to finance multiple energy efficient projects with a 504 loan. This is very big news for experienced hoteliers acquiring additional existing properties especially when you consider that businesses with net tangible assets of up to $15 million and net income of $5 million can now qualify for SBA financing.
The key to qualifying is that the new property must consume 10% less energy per square foot and sometimes just acquiring a more recently constructed hotel is enough to qualify because newer construction typically means better energy efficiency.
Click here: Energy Efficient 504 Loan for more complete detailed information on what it takes to qualify.
Hotel & Motel Financing - State of the Current Market:
- Hotel financing for new construction is only available for extremely strong projects in the current economic environment. Hoteliers need significant ownership/management experience, equity and will likely need substantial cash flow from other properties or businesses.
- Hotel acquisition financing for qualified buyers for properties that are doing well is much more possible than new hotel development.
- Refinancing is now possible for existing properties using the 504 program with or without an expansion or renovation.
- Refinancing is also possible up to $5 million with an SBA 7a loan.
- Well maintained Flagged and Non-Flagged properites with good cash flow are eligible for financing.
Click here: SBA refinance rules for more information.
504 Hotel Financing Highlights
- Much larger loans now possible
- Very low rates and long term financing
- Minimum 15% down payment or equity injection
- Increased SBA Eligibility if you Go Green
- Readily available for Acquisition or Refinance
Click here: SBA 504 Refinance to find out more about the new refinance option.
SBA Hotel Financing - More Specific Information
- Traditionally SBA Hotel Loans maxed out at about $3.5 million, but recent changes to 504 program allow loans of up to $12 million+ and slightly higher if you can reduce your energy consumption by 10% or if you can produce some of your own energy. For more information about energy efficiency and green energy please visit our Green 504 Loan page.
- Another recent change to the 504 program allows larger, more profitable businesses to qualify for the program. Businesses can now have a net worth up to $15 million, and net (after tax) income of up to $5 million as a result of the "Small Business Lending Bill"which increased the limits dramatically allowing many more successful hoteliers to finance more or larger properties.
- If you are building or refinancing a hotel or motel and you have the ability to make the property 10% more energy efficient (and qualify for the Green Benefits of the 504 Loan as mentioned above) than you may be eligible for more SBA financing. In other words, if you already own a hotel or motel and you have SBA financing on that property, "going green" could increase your SBA eligibility and allow you to finance another property. **
- "504 loans" actually consist of 2 loans - a first mortgage provided by a lender and a second mortgage guaranteed by the SBA. The first mortgage is typically amortized over 25 years and is usually fixed for 5 years at a time. The second mortgage is a 20 year fixed rate that never adjusts. The combination of the 2 loans gives you the lowest possible commercial financing available.
- Hotels and Motels require a 15% down payment or equity injection since they are considered "special use" properties by the SBA. "Special Use" means that the hotel is specifically built to be a hotel and could not easily be converted for another type of business use. (Land value can be used at current value for equity if owned for 2 years or more).
- The SBA 504 program also provides financing that allows you to purchase and renovate an existing hotel. So if there is an older hotel that you would like to purchase and renovate you can use the 504 program to finance both the acquisition and any modifications to the new property...and possibly at 85% loan to cost since the 504 allows you to finance closing and soft costs.
- Similarly, the 504 loan provides financing to refinance and renovate or expand an existing hotel or motel, so if you currently own a property and it needs updating or if you need to expand it, you can use the 504 to finance the renovations.
The SBA 504 is ideal for, but not limited to, flagged, limited service hotel and motel franchises like the following:
Best Western
Choice Hotels
Comfort Inn
Comfort Inn & Suites
Country Inn & Suites
Courtyard Inn
Days Inn
Fairfield Inn
Four Points
Hampton Inn
Hilton
Hilton Garden Inn
Holiday Inn Express
Marriot
Quality Inn
Ramada Inn
Sleep Inn
Super 8
Please contact us at 1-800-414-5285 to find out more about our expertise with SBA 504 hotel and motel financing including USDA Hotel Loans and Private Equity.
*Please check with your accountant and the proper parties to verify eligibility and tax deductibility.
**"Going Green" also gives you significant tax deductions in most states since almost all states (and the Federal Government) have created major tax advantages for companies that adhere to green building and energy efficient guidelines. (There is currently a 30% Federal Grant for renewable energy "property" that can be used towards your down payment/equity injection).
Solar & Energy Efficient Technology Financing for Hotels
Solar panels - either roof mounted or on the ground - can be financed with a "green 504 loan" since the program allows financing of equipment with a useful life of 10 or more years. (Solar panels are eligible since they are expected to last up to 25 years).
There are numerous federal and state grants and incentives available including a 30% federal grant for the purchase of renewable energy or solar equipment. The grant is assignable to the lender for part of the down payment/required equity injection and there is no limit on the amount of the grant.
The grants available from some states are actually larger than the federal grant and in New Jersey, PA, NC and other states there are SRECs and/or "renewable energy credits" that can provide additional cash flow for the property.
It is also possible to finance energy saving technologies that make your hotel more energy efficient and we can assist with equipment financing for various systems.
Please contact us at 1-800-414-5285 for more information.
