Hotel Loans

How Hotel Loans Work

Common Types of Hotel Loans

• SBA loans: The SBA 7(a) program offers up to $5 million for acquisitions, renovations, equipment, and working capital, with terms of 10 to 25 years. SBA 504 loans provide up to $5.5 million for construction and land purchases, though they cannot be used for working capital.
• Conventional bank loans: Offered by banks with fixed rates and terms, but requiring strong credit and longer approval timelines.
• Bridge loans: Short-term financing to cover gaps before permanent funding. These loans are fast to secure but come with higher interest rates.
• Hard money loans: Provided by private lenders with quick funding, higher rates, and short repayment terms. Approval is usually based on collateral value.
• Construction loans: Used to build new hotels, often converting into permanent financing once construction is complete.
• Equipment loans: Financing for hotel-specific equipment such as laundry systems or commercial kitchens. These can also be structured as leases.
• Mezzanine and preferred equity: Hybrid financing that combines debt and equity. Often used when traditional loans do not fully cover project costs, but may require giving up partial ownership.
• CMBS loans: Commercial mortgage-backed securities designed for larger hotel projects. These loans are typically non-recourse but less flexible.

Key Considerations

• Down payments usually range from 10% to 20% of the loan amount.
• Credit score and financial strength requirements vary by lender and loan type.
• A detailed business plan is often required, outlining costs, revenue forecasts, and management strategy.
• Features such as green building certifications or smart technology can improve financing terms with certain lenders.