Business owners and investors have more hotel and hospitality financing options than ever today — but which ones are worth your time?
Some lenders will only give a borrower the time of day if they can meet strict lending requirements, or are acquiring a big-name hotel brand.
Other private lenders or funding groups, have more flexibility with their lending requirements and can make hotel lending decisions based on the merits of the deal.
In this article, we’ll share the top four things you need to know about this type of financing, and how to find a true lending partner — whether you’re new to hotel and hospitality financing or you want to explore other loan options.
How does hotel and hospitality financing work?
Hotel and hospitality loans are essentially commercial real estate loans structured specifically for your unique hospitality business purposes.
Hotels need a lot of upfront work and care to be successful — meaning they need a lot of upfront investments.
And, if you plan to grow over time, you’ll need even more sources of financing to continually upgrade, repair, remodel, or expand your hotel business.
The best financial option for a hospitality entrepreneur is to find a reliable, trustworthy lending partner.
But before we get into that, let’s take a look at the top four things you should know about hotel financing, including what it covers and what’s required of you.
1. Hotel financing covers multiple projects and purposes
The beauty of hotel financing is that it covers a wide range of projects and purposes.
You can use a hotel loan to purchase land, build a new hotel, renovate an existing hotel, buy furniture and equipment, or cover other business expenses.
You can even cash-out refinance an existing property, and use the cash for a down payment on another building or for hotel improvements.
You also aren’t limited to a certain type of building. You can build a hotel or motel, a bed and breakfast, a resort, or any other hospitality option.
Hotel financing loans are commercial loans, but what makes them different is that they’re structured uniquely for the hospitality industry. This includes the costs that are specific to your business goals.
What’s your loan scenario?
2. You have many loan options but most have specific requirements
Getting a hotel loan isn’t always easy, it just depends on the lending source.
Conventional bank loans, for example, boast low interest rates and high maximum loan amounts, but they require high credit scores and strict debt requirements.
For the average small business owner, this usually isn’t feasible.
Other common hotel loan options include:
- Small Business Administration (SBA) loan
- Bridge loan
- Hotel refinance
- Business line of credit
- Hard money loan
Similarly to conventional bank loans, SBA hotel loans generally have very specific requirements for credit score, debt, income, property, and years in business.
Hard money loans often are the most logical and flexible option for hospitality financing.
They are suitable for a wide range of borrowers, including small business owners, real estate investors, those with a lower credit score, or those with more unique or complicated scenarios.
3. Hotel financing qualifications and considerations
Hotel financing considerations that are specific to the hospitality industry include the following:
- Debt yield
- Net operating income
- Revenue per available room (RevPAR)
- Loan-to-value ratio (LTV)
- Hotel brand
The qualifications for each consideration will vary by lender, with bank mortgage lenders among the most strict, and hard money lenders the most flexible.
One important note: Qualifying for a loan without a major hotel chain name behind your purchase can be difficult with traditional commercial real estate lenders. A well-known brand name has the potential to bring in more cash, which offers more security to the lender.
If you’re trying to forge your own way in the hospitality industry, it’ll be most helpful to partner with a lender that offers flexibility — and encourages an entrepreneurial spirit.
Hard money lenders don’t shy away from complex deals that banks would instantly turn away from.
4. Hard money lenders are perfect hospitality partners
Hard money lenders are common partners in the hospitality industry. These types of lenders offer the speed and flexibility that investors and business owners need to be successful.
What is a hard money lender? Hard money lenders are individuals, investors, or funding groups that lend money to borrowers based on common sense and the overall merits of the deal, rather than rigid requirements.
They are more interested in hearing about a borrower’s plan and exit strategy, and can quickly evaluate deals based on years of industry knowledge and expertise.
In other words, they simply want to know about the value of the deal and how you intend to pay back the loan.
What really makes a hard money lender different from other types of lenders is their interest in building real relationships with borrowers. This creates a level of trust and respect to support many years of mutually beneficial deals.
Not all hard money lenders are the same. It’s important to ask the lender a lot of questions about their background and experience, as well as search for referrals and reviews.
Marquee Funding Group offers hotel and hospitality financing options
If you’re interested in entering the hospitality business, or in expanding your current business, Marquee Funding Group is the ethical standard in hard money lending.
We are a tight-knit group of experienced hard money lending experts. Each loan officer is highly trained and capable of structuring mortgage options for unique business and owner-occupied loan scenarios.
We offer a wide range of loan options to help support your goals and fulfill the industry need for fast, flexible financing.
Our options include:
- Hotel purchase money loans
- Hotel construction loans, including ground-up construction, fix-and-flip, fix-and-occupy, or value-add
- Hotel bridge financing
- Rate-and-term refinance or cash-out refinance
- Owner-occupied consumer or business purpose
- Non-owner-occupied consumer or business purpose
- Single family, multi-family, commercial, industrial, and land loans
We offer loan amounts up to $20 million, with LTVs up to 70%, deal-specific.
In many cases, we can provide same-day approvals, with closings in as fast as seven to 10 days.
If you’re interested in working with our team for your hotel financing needs, submit your loan scenario to us today for quick review.
We understand the urgency you need to get your deals done, and we’re excited to support you in your new business ventures.
Photo by maitree rimthong