REFINANCING PROGRAMS
1. SBA Loans
SBA 7(a) Loans: These loans can be used to refinance existing hotel debt, offering competitive interest rates and longer repayment terms. They are suitable for various refinancing needs, including consolidating multiple loans or accessing working capital
7a Loans allow a justified cash out for working capital, renovation or to buy out a partner, all has to be specifically in documentation, for working capital what will be the purpose of it (Marketing, Operation, Hiring, FF&E, Material, etc.), the renovation accompanied with a GC quote, and the buyout partnership with an agreed price in a buyout agreement or LOI. 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.
SBA 504 Loans:
Designed explicitly for purchasing fixed assets, these loans can also be used for refinancing. They typically offer lower interest rates and longer terms compared to conventional bank financing.
504 Loans offers 100% refinancing loans. This program is a combination of two mortgages. The federal government via a CDC lends a 50% of the money (money goes to the bank) and the Bank lends 50% of the money that the client needs. Combined rates can be between 6 -7.5%. Typically an SBA 504 is for a loan over 5M, tho some banks can do as low as $1M to up to 20M. It is a recourse loan and the prepayment is for 10 years.
2. Conventional Commercial Real Estate Loans
These loans are tailored for refinancing commercial properties, including hotels. They generally feature:
- Long repayment terms (up to 25 years)
- Competitive interest rates
- Flexibility in refinancing existing debt while potentially providing additional funds for renovations or operational expenses
- LTV 65% to 75%
3. CMBS Loans (Commercial Mortgage-Backed Securities)
CMBS loans are another option for hotel refinancing.
They involve pooling multiple loans into securities sold to investors. Key characteristics include:
- Non-recourse nature, meaning lenders can only claim the property in case of default
- Fixed interest rates and long amortization periods, making them suitable for stable hotel operations.
CMBS conduits, Start from $7M for hotels for brands of Marriott, Hilton, Hyatt, and IHG with interior corridors. Can be up to 100% refinancing, 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 solutions that can be used for refinancing when immediate capital is needed. They are particularly useful for:
- Quickly addressing cash flow issues
- Transitioning between financing options while waiting for long-term financing to be secured. However, they typically come with higher interest rates and shorter terms.
5. Hard Money Loans
These are short-term loans provided by private lenders, secured by the hotel property itself. They are often used for refinancing when traditional financing is not available. While they can be obtained quickly, they usually carry higher interest rates and fees.
6. Preferred Equity Financing
This option involves raising capital from investors in exchange for a preferred return. It can be a viable alternative for refinancing, especially when the borrower wants to minimize debt or when traditional financing options are limited.
7. Cash-Out Refinancing
Cash-out refinancing allows hotel owners to refinance their existing mortgage for more than they owe and take the difference in cash. This can be used for renovations, upgrades, or other investments in the property.
Key Considerations for Hotel Refinancing
- Debt Service Coverage Ratio (DSCR): Lenders typically look for a DSCR of at least 1.25, indicating that the hotel generates sufficient income to cover its debt payments.
- Loan Terms: Understanding the terms of the new loan, including interest rates and repayment periods, is crucial for ensuring the refinancing aligns with financial goals.
- Property Value and Condition: The current market value and condition of the hotel will significantly impact refinancing options and terms.