SBA 7(a) Loans For Hotels
In October of 2023, the SBA implemented a number of key changes to its lending programs. Here is anoverview of some of the most significant updates and what they could mean for you as a potential borrower. See changes below in red.
SBA has been a primary means of financing hotels and motels for many years. If you are looking for a hotel loan, in many instances an SBA 7(a) loan is the clear choice.
Types of Financing
- Acquisition
- Construction
- Expansion
- Refinance
- Start-Up
Loan Amounts: $100,000-$5,000,000
Terms: 7, 10, 25 Years (depending if working capital, business only or real estate)
Interest Rate: Prime + .0% -2.75% (Varies by credit risk)
Loan To Value: 50 – 90%
Prepay Penalties: 1st Year 5%, 2nd Year 3%, 3rd Year 1%
Fees:
- None to minimal lender fees
- Due Diligence Deposit
- Customary closing costs
- Construction fee, if applicable, to offset monitoring costs
- SBA charges a fee of approximately 3.25 - 3.75% (depending on loan amount and percentage of guarantee, usually 75%)
Eligibility:
- Owner occupied small business
- US Citizen or permanent resident alien status
- Good credit/character
- Management experience
- Reasonable financial statement or credible projections
- Business must meet SBA size standards
Collateral: First lien on land, building, equipment and inventory. Additional outside collateral is necessary if lease-hold improvements are substantial.
Quick Response Loan decision generally made within 3 weeks of receipt of completed application. SBA remains the predominant means of financing hotels and motels in the country. The reasons are clear. Because SBA provides longer amortization periods and usually transactions can be approved with smaller debt service coverage, each finance dollar provides approximately 25% more in loan amount, making it easier for borrowers to qualify than for conventional financing.
It is a misconception that SBA financing takes longer than conventional financing or that you have to be turned down for a conventional loan to be considered for SBA financing. Generally the speed of the approval is in direct proportion to the organization of the loan package that has been submitted. Recently, SBA has placed more emphasis on the prior experience of the borrower.
If you do not have experience in operating hotels, it will be necessary to either bring in a partner with direct management experience, retain the seller (if a purchase) in a management capacity for a period of time and/or perhaps attending training courses.
Also important to note is that the borrower’s equity infusion needs to be documented. If you are borrowing money from a third party or are using a home equity loan as part of your equity infusion, SBA would also consider this as a loan and the transaction would be underwritten to service two separate debts.
The SBA will waive all guarantee fees for loans of $1 million or less.
Sellers can receive money quicker for seller notes
When buying a hotel, buyers will sometimes to turn to the seller if they can not come up with sufficient equity to make a purchase. Previously sellers had to be on a full standby, which means the seller was only paid off when the SBA loan was paid off. Now sellers can be repaid after months and receive interest only payments if the business can afford the payments.
Partial changes of ownership now allowed.
It’s now possible to put a 7(a) loan toward a partial change of ownership. Previously, these loans could only be used as part of a complete business purchase or transition.
To find out and pre-qualify for a hotel loan and what options are available, please send the following information. You can also email us an Executive Summary of your project to info@petromac.com and we will respond to your inquiry.
- Loan Application
- Personal Financial Statement (PFS)
- Resume
- Previous Year End Business Financials
- Current Year-To-Date Business Financials
For more information, contact us at:
(202) 818-8717 Voice
(202) 204-6057 Fax
info@hotelloans.capital