Financing a Hotel

Operating a hotel can be a lucrative investment opportunity, and is one that takes a great deal of funding to get off the ground. Obtaining a traditional business bank loan for a hotel is typically very challenging due to the rigid requirement criteria of banks, but with recent shifts in the industry, a hotel developer doesn’t necessarily have to rely on a bank loan to boost their business. Fortunately there are many other types of hotel financing options available that can provide the necessary funds to buy, furnish, and renovate a hotel. If you are interested in owning and operating a hotel and have questions about how to launch your business, Preferred Capital Funding can help. Read on to learn more about available hotel financing options.

Identifying the Purpose For Hotel Financing

There are several different types of hotel financing options available, and you will want to work with a lender to understand the option that best suits the needs for your particular business. You will want to first determine your main purpose for financing. Are you seeking a loan in order to purchase a property, make renovations or expansions to an existing property, or are you looking for financing to help you with operational costs? Once you have identified your main purpose for obtaining hotel financing, you can begin to explore your financing options.

What Hotel Financing Options Are Available?

Some common types of hotel financing options include:

• SBA 504 loans – These types of loans provide fixed rate, long term financing to help purchase an existing building, land, construction of a new facility, renovations, and refinancing of a hotel. In order to qualify for this type of loan, the structure must meet the SBA’s size requirements for a small business and meet owner occupancy requirements, must operate for a profit, and have a net worth of $15 million or less and an average income of $5 million or less after taxes for two years prior to the application.
• SBA 7(a) loans – A small business loan issued by a private lender and partly backed by the government (U.S. Small Business Administration) that can be used for operational expenses, construction, and obtaining a pre-existing business, with loan amounts of up to $5 million. In order to qualify, borrowers must have a credit score of at least 650, assets to be put up for collateral, and minimum business profits of $100,000 a year.
• Business lines of credit – This type of financing offers a source of credit from which a business can draw money from as needed. You will repay the borrowed amount of funds plus interest over a set repayment term.
• Commercial real estate loans – a mortgage that is secured by a lien on a commercial property, and is sometimes simpler for borrowers who may not have ideal financial or credit qualifications to obtain.

If you are interested in financing a hotel, Preferred Capital Funding can help you explore your options. Contact our office today for a consultation.