Hotel loans can be easily acquired from Custom Mortgage. As real estate markets transform and the economy begins to improve, the hotel industry has been improving and lenders are looking to provide loans to qualified borrowers. Hotel financing is dependent on the location and historic income of the hotel or motel. With the many programs available to our borrowers, there is always a loan solution that will best for your scenario. We provide financing for both flagged hotel “franchised” and non-flagged hotel “independent” hotel/motel” so if you are a hotel owners and are looking to obtain the best loan financing, contact us today!
When it comes to hotel financing, working with professionals is essential so call one of our hotel loan experts at 877-976-5669 and see what you qualify for.
Loans for hotels has can be broad and may entail different forms of financing such as conventional or SBA loans, private loans, and/or non conventional funding sources. Non traditional financing sources have been utilized by hotel owners in today’s strict financial landscape. Hotel loan can be used for transactions including:
- purchasing existing hotel business
- starting up a new hotel
- construction financing
- acquisition of properties
- refinancing properties
- purchasing business equipment
- working capital
Hotel Loans: Loan you should consider?
There are so many loan programs and funding solutions that may be used to finance hotels and motels, which loans are right for you? Rates and terms for loans are determined by the risk associated with your transaction. The credit rating and income of the business, along with the credit and historic income of the operator can be large deciding factors of the approval of your loan. Interest rates can be adjustable, fixed and depending on your scenario, we can help you decide which is best for you. Construction financing is also available and terms can structured as an interest-only loan during the hotel construction period. Depending on the property being financed with the loan, terms can be anywhere between 5-30 years. There are several hotel loan options that borrowers can evaluate for their hotel financing needs such as:
(SBA) 7(a) and 504 loan programs are the most viable options for your transaction if you qualify. The SBA 7a program is used for loans below 3,500,000 and the 504 has not limit. The 504 program can also only be used for purchase of real estate or construction of real estate. SBA loans are backed by the federal government so there is less risk to the lender but lenders are more strict on their guidelines. Loan eligibility requirements require income and asset verification documents and SBA standard procedures for loan underwriting. Terms and pricing for the loan vary depending on your scenario but for rule of thumb, loan rates are the prime rate plus up to an additional 2.75% and the rate is adjustable according to the market changes.
Conventional hotel loans can be made by most lenders and vary according to each bank. Unlike SBA loans, lenders take higher risks because they are not backed by the government so credit, income and other guidelines are reviewed and are very important in conventional loan approvals. Lenders have more flexibility for conventional loans and are able to offer more options. Highly qualified hotel loans is what the banks will look for and they will offer great terms for these loans.[/tab]
Unsecured credit lines are available for hotels that have strong credit and income to be verified by the lender. These are high risk loans for the lender and tend to have higher rates. The operators personal finances and personal guarantee may be required for unsecured lines of credit along with the hotel’s application. Apply today and find out what you qualify for!
Other Hotel Financing Solutions
Merchant Cash Advance
MCA products are also available if you accept credit cards and have the ability to provide evidence of your monthly processed transactions. These loans tend to be more expensive and are a based on a percentage of your total credit card amounts that are received. Merchant cash providers will lend on historical credit card sales information. Merchant cash is a short term financing solution but can be processed very fast so businesses have quick access to funds. Hotel owners can use MCA funds for any purpose they desire such as remodel or equipment purchases.
Seller Carry Financing on hotel purchases
Hotel purchase transactions may use seller carry back financing to complete the purchase. The seller loans back a percentage of the transaction amount and normally will hold a second deed of trust behind the main lender. Seller financing is a common part of hotel and motel purchases. If you are considering purchasing a hotel property, we are able to help you coordinate a seller carry back loan.
Hotel Lenders have many underwriting requirements to fund a hotel loan. Some of these requirements are outlined below:
- Revenue Per Available Room (RevPAR) – Hotel’s Average Daily Rate (ADR) multiplied by Occupancy (OCC). This also takes into consideration the historic income of the property
- LTV – Loan to Value of proposed property for the transaction
- DSCR – Debt Service Coverage Ratio is calculated by dividing the Net Operating Income (NOI) by the Total Debt Service (requested loan annual payment)
Loan amount vary from 60% LTV to 90% LTV depending on the other compensating factors. DSCR may be as low as 1.1 for some hotel lenders but normally is between 1.20 or 1.35 available cash to the annual loan payments. The higher your DSCR, the more you can borrow. Personal finances and credit of the business owners are considered and may be reviewed by the lender.