HOTEL FINANCING & REFINANCING

HOTEL FINANCING & REFINANCINGHOTEL FINANCING & REFINANCINGHOTEL FINANCING & REFINANCING
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    • About US
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    • Who we are
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HOTEL FINANCING & REFINANCING

HOTEL FINANCING & REFINANCINGHOTEL FINANCING & REFINANCINGHOTEL FINANCING & REFINANCING
  • About US
  • Referrals
  • Contact
  • Who we are
  • President
  • Lenders Past Loans

FINANCING PROGRAMS

1. SBA Loans

 SBA 7(a) Loans: These loans can provide up to $5 million for various purposes, including construction, with terms up to 25 years. They are suitable for smaller projects and owner-occupied hotels 


7a Loans are 80% financing, DSCR of 1.25x of the Hotel projected EBITDA. Working capital,  renovation, and PIPs are allowed. All must be documented explicitly for working capital, its purpose (Marketing, HR, material, etc.), and the construction, accompanied by a GC quote. The loan is recourse. Our lenders lend from $500k to 5 million. Loans can be fixed or variable for 25 years with rates between 6.5% and 7.5% fixed and floating prime +1% to 3%. There is a 3-year prepayment penalty. Closing time is 45-90 days.

SBA 504

SBA 504 Loans: Ideal for larger projects, these loans can finance up to $15 million and are often used for purchasing real estate and equipment. They typically have lower interest rates and longer terms, making them attractive for hotel construction


504 Loans are 80% financing, with a DSCR of 1.25x of the Hotel projected EBITDA. Working capital is allowed. This program is a combination of two mortgages. The federal government, via the CDC, lends 40% of the money (money goes to the Bank), and the Bank lends 50%; the client is responsible for the 10% equity required. Combined rates can be between 6% and 7.5%. Typically, an SBA 504 is for a loan over 5M, though some banks can do as low as $1M to up to 20 M. It is a recourse loan, and the prepayment for the CDC is for 10 years, and the Bank is for 5 years. Closing time is 90-120 days.

2. Conventional Commercial Real Estate Loans

These loans are specifically designed for purchasing or refinancing commercial properties, including hotels. They often feature:

  • Long repayment terms (up to 25 years)
  • Competitive interest rates
  • Loan-to-value (LTV) ratios ranging from 65% to 80% 


3. CMBS Loans (Commercial Mortgage-Backed Securities)

CMBS loans are a type of commercial real estate loan where the mortgage is converted into bonds and sold to investors. These loans are: Non-recourse (lenders cannot pursue borrowers beyond the collateral) Suitable for large-scale acquisitions Typically have fixed interest rates and long amortization periods (25–30 years)


CMBS conduits, Start from $7M for hotels for brands of Marriott, Hilton, Hyatt, and IHG with interior corridors. Can be up to 70% financing,  non-recourse loans (no personal guarantee), loans are assumable, allowed Equity Cash-Out without restriction, no minimum credit score, rates are below 7% fixed for 5, 7, 10 years term and 25 to 30-year amortization. The LTV is 60-70%. Properties must be stabilized with historic cash flow to support mortgage payments at 1.35 DSCR for the past 2+ tax returns. 

4. Bridge Loans

Bridge loans are short-term financing options used to "bridge" the gap between acquiring a hotel and securing permanent financing. They are ideal for situations where quick funding is needed, such as competitive acquisitions. However, they come with higher interest rates (often 8.5%–10.5%) and shorter repayment terms (6–24 months)

5. Mezzanine Financing

Mezzanine financing is a hybrid of debt and equity financing. It allows lenders to convert debt into equity in case of default. This type of financing is often used for acquisitions and buyouts, especially when additional capital is needed beyond traditional loans. However, it comes with higher interest rates due to its unsecured nature

6. Hard Money Loans

Hard money loans are short-term loans provided by private lenders and secured by the hotel property itself. They are easier to qualify for than traditional loans but come with higher interest rates and fees. These loans are often used for quick acquisitions or when traditional financing is not an option

7. Preferred Equity and Joint Venture Financing

In some cases, hotel acquisitions are funded through partnerships or joint ventures. Preferred equity financing allows investors to contribute capital in exchange for a preferred return on their investment. This option is often used for larger acquisitions or when the borrower wants to minimize debt

Key Considerations for Hotel Acquisition Financing

  • Experience and Track Record: Lenders often assess the borrower's experience in the hospitality industry, which can significantly impact loan approval and terms.
  • Project Feasibility: Detailed feasibility studies are crucial to demonstrate the project's potential profitability and market demand.
  • Financial Metrics: Lenders typically evaluate metrics such as Revenue Per Available Room (RevPAR) and Net Operating Income (NOI) to assess the project's viability


 By understanding these various types of hotel construction loans, potential borrowers can better navigate the financing landscape and choose the option that best fits their project's needs. 

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