HOTEL/MOTEL AND HOSPITALITY FINANCING
Hotel and motel financing can be one of the most complicated to secure funding for, but PHD Financial has been specializing in the sector for more than 30 years. Our relationships with lenders and the SBA, and our vast network of hospitality industry contacts, make PHD Financial the most productive and successful firm to get your hotel project or portfolio funded, refinanced or restructured.
We have a seamless process from the moment you contact our firm, until the day of closing; and we are dedicated to ensuring a smooth transaction.
Our document collection process is detailed, and we work tirelessly to position you and your property/properties for the optimal result.
If there are credit issues, we will advise you on improving your credit score. If there are cashflow challenges, we will examine your books closely and consult on how you can better address the issues.
Whether you have a small independent motel, medium-sized flagged property, or luxury hotel, we have the know-how and dedication to successfully advise you. With PHD Financial’s depth and breadth of experience, you are in the best hands for getting your property built, purchased or refinanced.
Hotel financing can be used to build, buy, renovate, or refinance a hotel or motel. The four main types of hotel loans are SBA 7(a) loans, SBA 504 loans, USDA B&I loans, and conventional bank loans. Rates for hotel/motel financing are typically between 5% to 9%, with repayment terms up to 25 years.
Here are some of the things that hotel financing are most often used for-
Buying an existing hotel: Business acquisitions can be costly, and this is especially true when purchasing an existing hotel due to the real estate involved.
Building a new hotel: New construction is an expensive endeavor and often requires a sizable amount of financing.
Renovating an existing hotel: Whether you are renovating an entire building, or modifying certain areas, these costly repairs may be more than your operating budget can afford.
Purchasing furniture, fixtures, and equipment: In time, furniture, fixtures, and equipment will need to be replaced, and large expenditures may require financing.
Covering working capital needs: As a hotel owner, you may require a boost in working capital to cover current expenses.
Types of Hotel Loans
PHD Financial most often secures the following types of loans for hotel/motel clients-
- Conventional Financing
- SBA (7a) Loans for Real Estate
- SBA 504 Loans
- USDA Loans
Conventional Bank Loans
A conventional bank loan is a standard commercial loan issued by a bank or lending institution, and not backed by the federal government. Conventional bank loans can be used to purchase, construct, or refinance hotel properties.
The typical rates and terms for a conventional bank loan are:
- Loan size: No limit
- Interest rates: 5% to 7%
- Repayment term: Up to 25 years
SBA 7(a) Loans for Commercial Real Estate
The SBA (7a) Loan program offers commercial mortgages backed by the Federal government. SBA 7(a) loans are the most common type of SBA loan that we place clients with as they can be used to purchase or refinance hotel properties up to $5 million; as well as provide the opportunity to borrow funds for working capital needs.
The typical rates and terms for an SBA 7(a) loan are:
- Loan size: Up to $5 million
- SBA interest rates: 7.25% to 9.75%
- Repayment term: Up to 25 years
SBA 504 Loans
The U.S. Small Business Administration backs the SBA 504 loans.
PHD Financial will secure SBA 504 loans for clients with new and existing businesses that want to purchase or refinance commercial property.
An SBA 504 loan is comprised of two loans- one from a Certified Development Corporation (CDC) and one from a traditional lender.
The typical rates and terms for an SBA 504 loan are:
- Loan size: Up to $14 million
- Interest rates: 4.5% to 6% on CDC loan and 5% to 12% on bank loan
- Repayment term: Up to 20 years
USDA Business Loans, formally referred to as USDA Business and Industry loans, are business loans guaranteed by the U.S. Department of Agriculture (USDA). These loans are made by banks or credit unions to businesses in rural areas; and a portion of the loan is guaranteed by the USDA. These loans are very similar to SBA Loans, but with a focus on promoting small businesses, like your hotel or motel, and creating jobs in rural communities.
USDA loans can be used for:
- Commercial real estate purchase, development or improvement
- Machinery, equipment, supplies or inventory purchases
- Working capital
- Business modernization, development or repair
- Debt refinancing when it improves cash flow and creates or saves jobs
- Business Acquisition when the loan will create or save jobs
Hotel Financing for Acquisitions
A conventional hotel acquisition loan is used to purchase an existing hotel that is currently operating. Commercial hotel acquisition loans only allow a 65% loan-to-value (LTV), while SBA 7A and 504 loans will allow as high as 80% to 90% LTV. The higher down payment requirement for acquisition can be a significant challenge when you’re purchasing an existing hotel.
Buying a hotel often requires financing for a large portion of the purchase price. Buying popular flagged hotels—one that is operated under a well-known brand name—is often easier to finance than an independent hotel or a mom-and-pop hotel.
Hotel Acquisition Loan Options
The most popular long-term financing options for hotel acquisitions are SBA loans and private lenders. Bridge loans, however, are sometimes used to close a transaction quickly; with the bridge loan being refinanced shortly after that with a longer-term loan. With our specialized lending team focused on hotel loans, PHD Financial can assist you with financing your acquisition.
Contact our PHD Financial loan specialists to begin the application process. If approved, you can typically receive funding within 45 days.
|Loan Type||Best for|
|Conventional Bank Loan||Businesses with plenty of collateral and an existing banking relationship|
|SBA (7a) Loan||Commercial Real Estate- affordable financing of up to $5 million|
|SBA 504 Loans||Projects that benefit the community, or projects costing up to $14 million|
Building a new hotel from the ground up is the most difficult project to get financed, largely because you don’t have any performance history to show. Getting financed for these deals is similar to getting financed when you’re starting any new business, with the added benefit that you’re building your collateral.
New hotels are going to cost more than any other hotel project.
The process can be lengthy, and you’ll likely need to pay out a significant amount of money before you’re able to open the hotel for business.
Even after you open, it may be a while before your hotel starts bringing in the amount of revenue necessary to make large loan payments while still meeting its operating cost demands. All of these factors need to be taken into consideration when securing hotel financing for a new construction project to ensure that your business can remain solvent after opening.
Additional costs that will be included in the loan amount we request for you include:
Construction down payments: Be aware of any upfront payments that may be required from contractors and include those in the loan amount.
Operating expenses: Your loan should include a cushion equal to one to three months of operating expenses to cover any expenses while your business begins generating revenue.
Loan payments: It can be difficult to make loan payments when you first open your hotel, including a cushion to cover the first few months of loan payments, may be advised.
We may advise you to consider only taking out a hotel loan for your new construction project if you have enough money on hand to handle some or all of these up-front or early operating costs.
With PHD Financial’s long history in hospitality and finance, we have the track-record and know-how to help set you up for success.
|Loan Type||Best for|
|Conventional Bank Loan||New construction hotel projects that have strong proof of concepts|
|Private Lender||Projects with a strong potential return-on-investment|
|Real Estate Investment Company||Difficult or high-cost projects|
Due to the extensive amount of capital required to construct a new hotel, finding financing can be difficult.
PHD Financial will work with you to find the best loan product for your project .
Contact us today to discuss your hotel financing options- 561.508.7558.
Hotel Financing for Franchises
If you’re buying a successful, well-known franchise hotel, you may find it easier to get a loan than starting or buying an independent operation.
This is due to having a proven brand, existing business model, and partnerships that your franchisor may have.
PHD Financial works closely with franchisors and we are a preferred lender for several- Red Roof, G6, and EconoLodge to name a few.
One of the huge benefits of being a franchisee is that your hotel’s branding is already established.
If your business has an established banking history with a lender you may fair well with a conventional bank loan, however, both SBA 7(a) loans and SBA 504 loans can be used to finance a franchised hotel.
Regardless of the loan product, having all the necessary documentation prepared in advance will help to ensure a smoother funding process.
For more on what you’ll need to have for your loan application, depending on which loan product we seek for you, click below.
Getting funding for a loan as a franchisee could have extra requirements, but PHD Financial will be there every step of the way to make sure the lender has everything they need from you and your franchisor.
|Loan Type||Best for|
|Conventional Bank Loan||Those whose franchisor has an established relationship with a bank|
|SBA 7(a) Loan||Commercial Real Estate- franchise hotels that are already profitable in your geographic area- maximum loan $5 million|
|SBA 504 Loan||Those needing up to $14 million in franchise hotel financing|
|USDA Loan||Property is in a rural area|
Hotel Loans for Renovations
PHD Financial secures many hotel renovation loans for clients who need to finance improvements that will increase the life and value of their hotel. Renovations include expenses such as new carpet, pool updates, painting, or other nonstructural improvements to the building.
Many hotel owners will try to make minor renovations by using operational cash flow of the business, but major renovations, in excess of $100,000, often require some type of financing. For a renovation to get funded, the revenue and cash flow of the hotel must be very strong. PHD Financial will work with you to:
- Be able to show the lender how easily you will be able to make any renovation loan payments
- Show how those nonstructural improvements will help the business
Property Improvement Plan Obligations
If your hotel is part of a franchise system, the franchisor may require you to agree to a property improvement plan (PIP). The PIP will require you to renovate specific aspects of the hotel at various points in time. For example, the franchisor could force you to purchase new signage, which they’re allowed to do under your Property Improvement Plan, or they may require that your lobby is renovated every five years.
The franchisor may require you to deposit funds into a PIP reserve. Whether you acquired an existing hotel or built one from the ground up, you may be required to have money in reserve for renovations of the property. We advise you to check for any PIP reserve funds you might currently have, as it can help alleviate some of the costs.
Hotel Renovation Loan Options
|Type of Loan||Best Used For|
|Conventional Bank Loan||Well-qualified, established hotel businesses|
|SBA 7(a) Loan for CRE||Larger renovation projects that will increase business revenue and cash flows|
|Bridge Loans||Short-term financing while awaiting a more affordable long-term financing option|
|Business Line of Credit||Unexpected expenses and smaller renovation or repair needs|
Renovations tend to be less expensive than new projects, resulting in smaller loan amounts.
In general, a conventional bank loan will be the least expensive form of renovation financing for those that can qualify.
SBA Loans are often used for hotel renovation projects, however, they require a significant amount of documentation to prove that the proposed renovations will increase the revenue or cash flow of the business.
PHD Financial works very closely with clients to show the asset turnover ratio. This calculates how much money is earned compared to the money invested in an asset, like your hotel.
Smaller repair projects can sometimes be funded through a business line of credit, which provides additional flexibility to the business. A business line of credit allows you to borrow and repay funds as needed for smaller or recurring minor repairs
Speak with PHD Financial today about your hotel renovation loan options.
Refinancing Your Hotel Loan
You may need to refinance your hotel loan when you’ve previously been forced to take a less-than-desirable loan to buy or build a hotel.
When PHD Financial refinances your current loan, we will get you lower rates, cheaper monthly payments, and additional capital towards hotel operations.
Refinancing an existing hotel as an operating business is typically much easier than financing a ground-up project. This is mainly due to the fact you now have a proven business model, with actual sales, occupancy data, and verifiable income.
Refinancing Loan Options
If your business is operating successfully, you’ll generally have a lot of options when it comes to refinancing, because the business already has a history of making mortgage payments. Additionally, you may have already paid down a portion of the initial debt, meaning that you’ll require less financing than when you first got a loan, which opens your borrowing opportunities.
When refinancing your current hotel loan, the lender will be very interested in how you’ve performed since the hotel has been in operation. This, combined with the future outlook of the market in your geographic location, will be the biggest underwriting factors in determining if you get approved and how much you can borrow.
PHD Financial has a thorough and efficient application process, expedited processing, fast approval, and typically gets funding within 45 to 60 days.
PHD Financial will work closely with you to correct any documentation errors in order to present your property as a viable and fundable entity.
For businesses needing to refinance commercial real estate loans up to
$5 million, an SBA 7(a) loan can often offer longer repayment terms than other commercial real estate loan options.
Speak with PHD Financial about your hotel refinancing options.
Contact us today at 561.508.7558.
|Loan Type||Best For|
|Conventional Bank Loan||Strong borrowers with an existing banking relationship with a conventional lender|
|SBA (7a) Loan||Commercial Real Estate- long-term financing up to $5 million with repayment terms of 25 years|
|SBA 504 Loans||Financing of up to $14 million for expansion or purchasing additional property|
Hotel Loans for Furniture, Fixtures & Equipment
One of the most common large expenses for a hotel is the replacement of furniture, fixtures, and equipment. These can be capital-intensive projects that are critically important to maintaining the power of your brand identity and the enjoyment of your guests. Often, when you are changing flags (franchise brands), there will be a need for FF&E funding to make the necessary changes to accommodate the new brand. Any financing needed to replace your furniture or important hotel fixtures is going to be similar to the financing you receive for any renovation.
However, when replacing equipment, there are equipment loans available that use the equipment you’re purchasing as collateral.
Equipment financing is a good option if you only need to pay for new equipment, or if you’re looking to finance equipment separately from other improvements.
For PHD Financial clients that need to finance all updates to equipment, furniture, and fixtures with one loan, we might look to an SBA loan. Having an equipment loan on your books when you apply for an SBA or conventional bank loan can make it more difficult to get approved.
The bank may also want you to pay off your equipment loan with the funds you receive from your new loan.
We may place you with any of the three main commercial real estate loans to pay for furniture, fixtures, and equipment if you wish.
When you’re purchasing equipment, however, we can facilitate access to special financing that uses your equipment as collateral, which is much easier to qualify for than traditional financing.
Furniture, Fixtures & Equipment Loan Options
|Loan Type||Best For|
|Equipment Loans||Larger equipment needs, excluding furniture and fixtures|
|Business Line of Credit Expenses||Smaller repair or replacement|
|SBA 7(a) Loans||Significant furniture, fixture and equipment needs, and additional working capital|
Equipment financing can be given as a loan or an equipment lease, with various potential options to purchase at the end of your lease term. The less you want to pay to purchase the equipment at the end of your lease, the more your monthly payment will cost.
A small business line of credit can be a good option for financing smaller furniture, fixture, and equipment needs.
Speak with PHD Financial today for a complimentary consultation about your hotel FF&E financing needs. Call us at 561.508.7558.