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Getting a Business Mortgage for a Hotel
Looking to buy a hotel, or grow your hospitality business? An SBA 7(a) loan can help alleviate your funding challenges, whether you need a business mortgage, new equipment, or working capital. Here's how the SBA helps.
- Hotel Financing Options
- Loan Terms for Hotel Owners
- SBA 7(a) or SBA 504 for Hotels: Which Is Right for Me?
- More Information on the SBA 7(a) Loan
- How to Qualify and Apply for an SBA 7(a) Loan
- SBA 7(a) Loan Terms
- Case Study: SBA Financing for a Hawaiian Hotel
- Want Personalized Guidance?
- Related Questions
- Get Financing
A hotel needs plenty of capital to get up and running. Even with a hotel franchise, there’s a lot of overhead that the small business owner has to shoulder.
The SBA 7(a) loan is one of the most common government-backed loans sought out by hoteliers. The loan requirements are straightforward, and the terms are appealing to both lenders and borrowers.
Hotel Financing Options
The SBA 7(a) loan covers almost all legitimate business expenses, whether it's a larger property or even a small bed and breakfast. The versatility of the loan program makes it an excellent option for small business owners looking for capital. You can use this kind of loan to buy an existing hotel, or for the construction of a new one.
The SBA 7(a) loan can also be used to refinance existing debt. If you’re under unreasonable terms with a loan, and your lender can’t sustain the loss of your inability to meet those terms, you might be able to refinance the loan using the SBA 7(a).
Loan Terms for Hotel Owners
There’s no minimum loan amount for the SBA 7(a), and the maximum is $5 million. The SBA guarantees up to 85% of the loan, based on the loan amount.
Real estate and land loans for new construction or for the purchase of existing buildings have a maturity of no more than 25 years. Equipment and working capital loans have a loan term of 10 years.
Helpful Resource: Using the SBA 7(a) Loan for Land or Real Estate
SBA 7(a) or SBA 504 for Hotels: Which Is Right for Me?
The SBA 504 loan is a larger, government-backed loan that’s similar to the SBA 7(a). This loan is offered through a Certified Development Company (CDC) rather than a bank or traditional lending institution.
The SBA 504 can’t be used for working capital, but can be used for some of the same purposes as the 7(a). The SBA 504 is often used to buy real estate or land, and it’s a great option for financing a hotel purchase. Financing rates for purchasing hotels are the same as for any other industry.
Compared to the SBA 7(a) loan, the SBA 504:
is a larger loan, with a minimum of $125,000 and a maximum of $20 million;
has a fixed interest rate;
has a 20-year maturity rate for real estate and land; and
requires a 10% borrower down payment.
What are the requirements for getting a business mortgage for a hotel?
In order to qualify for a business mortgage for a hotel, you must meet certain standards. These standards include having good bookkeeping, understanding your creditworthiness, and having a solid business plan. Additionally, you must meet the eligibility and qualifications for the SBA 7(a) loan.
What types of lenders offer business mortgages for hotels?
Business mortgages for hotels can be provided by a variety of lenders, including commercial banks, credit unions, and CMBS lenders. CMBS loans are a popular option for hotel financing, as they can provide large amounts of capital for major branded hotels, boutique hotels, budget hotels/motels, and hostels/bed and breakfasts. For more information on CMBS loans for hotels, please visit cmbs.loans/hotel-cmbs-loans. To speak with a commercial mortgage banker, please contact loans@cre.capital.
What are the advantages of getting a business mortgage for a hotel?
The SBA 7(a) loan is a great option for financing a hotel. It offers a number of advantages, including:
- Low down payment requirements
- Long repayment terms
- Flexible interest rates
- No collateral required
- No prepayment penalty
At SBA7a.Loans, we offer personalized guidance to help you find the best lender for your situation. We have a deep love of American small businesses, and we believe it shows in our customer-first attitude.
What are the risks associated with getting a business mortgage for a hotel?
The risks associated with getting a business mortgage for a hotel include the potential for defaulting on the loan, the potential for the loan to be more expensive than expected, and the potential for the loan to be more difficult to qualify for than expected. Additionally, the borrower must meet certain standards to qualify for the loan, such as having good bookkeeping, understanding their creditworthiness, and having a solid business plan. For more information on the SBA 7(a) loan terms, including how much you can borrow, loan maturity, fees, and more, please see this page.
What are the best strategies for getting approved for a business mortgage for a hotel?
The best strategies for getting approved for a business mortgage for a hotel include having good bookkeeping, understanding your creditworthiness, and having a solid business plan. Additionally, you must meet certain standards to qualify for an SBA 7(a) loan. These standards include having a credit score of at least 680, having a debt-to-income ratio of no more than 43%, and having a business that has been in operation for at least two years. Additionally, you may want to consider leveraging a lender-matching service to help you on your way to success.
For more information, please visit https://www.sba7a.loans/eligibility-and-qualifications-for-the-sba-7a-loan/ and https://www.sba7a.loans/sba-7a-loans-small-business-blog/sba-7a-loan-for-hotels/.
The SBA 504 loan is typically used with a commercial loan from a traditional lender, like a bank or credit union. The costs are split between the loans, and the SBA can guarantee an amount that’s more beneficial to itself, the lender, and the borrower. Learn more about SBA 504 here
More Information on the SBA 7(a) Loan
The SBA 7(a) is a versatile loan that’s designed to get you the capital needed for your small business. If you’ve been looking for a way to fund your motel, consider this kind of loan.
How to Qualify and Apply for an SBA 7(a) Loan
Good bookkeeping, understanding your creditworthiness, and a solid business plan can all help you when applying for your loan. But, as with any loan, a borrower must meet certain standards to qualify.
SBA 7(a) Loan Terms
See how much you can borrow, loan maturity, fees, and more.
Case Study: SBA Financing for a Hawaiian Hotel
Mikala, an experienced hotel manager, decided it was time to take the leap and start his own hotel in the beautiful beach town of Kaanapali, Maui, Hawaii. He had a clear vision: a boutique hotel that would cater to tourists seeking a luxurious and memorable experience in paradise. To turn his dream into reality, Mikala needed financing for land acquisition, construction, and initial operational costs.
He started by exploring traditional financing options like bank loans and private investors. While he received some interest, he discovered that these options either required high-interest rates or involved handing over significant equity in his business. Unsatisfied with these choices, Mikala turned to government-backed loans offered by the Small Business Administration (SBA).
Mikala found that he had two viable SBA loan options: the SBA 7(a) loan and the SBA 504 loan. Both loans offered attractive benefits, but Mikala needed to determine which loan would be the best fit for his specific needs. He considered the SBA 504 loan, which provides financing for major fixed assets like land, buildings, and equipment. However, this loan would not cover working capital or inventory costs, which were crucial for the initial stages of his hotel.
On the other hand, the SBA 7(a) loan offered more flexibility, allowing Mikala to use the funds for various purposes, such as land acquisition, construction, working capital, and inventory. Additionally, the SBA 7(a) loan offered a longer repayment term and lower down payment requirements, making it a more appealing choice for his business.
In the end, Mikala chose the SBA 7(a) loan for its versatility and favorable terms. With the funds secured, he began the exciting journey of building his dream hotel, confident that he had made the right decision for his business's financial future.
This is a fictional case study provided for illustrative purposes.
Want Personalized Guidance?
At SBA 7(a) Loans, we live and breathe the SBA 7(a) loan process. We match business owners like you with the best lender for your situation, even if it means that we have to look outside of the SBA 7(a) platform. We serve our customers by offering a free educational portal, and leveraging our lender-matching service to help you on your way to success.
To learn more about the SBA 7(a) loan program or to get a free quote, throw your details into the form below.