Hotel and hospitality loans are among the safest loan options for lenders due to the industry’s high profitability, yet these loans often are surprisingly difficult to acquire.
Traditional hotel loan options include bank loans and Small Business Administration (SBA) hotel loans, which have strict income, debt, and credit score requirements.
The best alternative to traditional lending for hotels is a hard money loan.
In this hotel loans guide, we will explain how to get a loan for a hotel, the requirements for all your loan options, and how to find the right lender to partner with for many future deals to come.
How can I get a loan for a hotel?
Investors and business owners looking to expand their portfolios with a hotel investment have many loan options available to them today.
With so many options, it’s important to understand what exactly is available to you, including the requirements, loan limits, and types of lenders.
Not all hospitality lenders are the same. Do your research to ensure your lender has the right experience to structure the type of loan you need.
To help you with these decisions and considerations, let’s take a look at three simple steps to finding the right hard money hotel loan.
1. Research your ideal location
Your location is among the most important factors in the hotel loan process.
While traditional lenders focus more on you and your financial situation, hard money lenders take a look at the overall merits of the deal and whether it makes sense.
Lenders who are experienced in hotel lending understand the importance of location, which includes accessibility, competition, and nearby attractions.
You’ll also want to understand how well the target market’s hospitality industry is performing.
2. Build or buy: Explore your hotel financing options
Hotel financing covers a wide range of property types, projects, and purposes, including:
- Hotels, motels, bed and breakfasts, resorts, and RV parks
- Purchase or refinance loans
- Commercial bridge loans
- New construction loans
- Renovations or remodeling
- Business expenses or large purchases
A hotel loan is essentially a large commercial loan that’s used for specific hotel and hospitality purposes.
As a result, you will have a lot of flexibility to help you execute your dream investment.
You can build a new hotel, renovate an existing building, do a cash-out refinance on a current investment to put a down payment on your new hotel, or use the loan to fund large purchases or other business expenses.
Understanding your exact purpose for the loan and drafting a solid business plan and exit strategy will prove to your lender that you know what you need and know how you will repay the loan.
3. Find a lender
Your three main lending options for a hotel loan are traditional bank loans, SBA hotel loans, and hard money loans.
What’s your loan scenario?
Traditional bank loans
Banks are among the most common lending options in the hotel industry, but these loans work best for those who are established in the industry and are seeking funding for large, well-known hotel or motel brands.
A conventional bank loan requires a specific debt yield, net operating income, and excellent credit. These requirements can make it difficult for many small business owners or investors to qualify.
Hospitality entrepreneurs may then turn to SBA financing.
SBA-backed hotel loans are specific to the industry, so they are suitable for a wide range of hotel purposes.
The two most common SBA loans are the SBA 7a loan and the SBA 504 loan. These loans are known to require smaller down payment amounts and out-of-pocket expenses than traditional loans, but it comes at a cost.
Similar to conventional bank loans, SBA hotel loans generally have very specific requirements for credit score, debt, income, property, and years in business.
In short, they’re also not easy to qualify for, and may even be harder for some borrowers to qualify for than a bank loan.
Hard money loans
If a traditional bank loan and SBA loan are out, what other options do borrowers have for their hotel business?
Hard money lenders are another popular option for investors and business owners, and in many cases, they’re the ideal choice.
These lenders are individuals, investors, or funding groups that lend money to borrowers based on common sense and the value of the deal, rather than strict conventional requirements.
As a result, they’re usually the most logical, flexible option for hotel loan purposes because they can provide funding for a wide range of borrowers, including those with a lower credit score or those with more unique or complicated lending scenarios.
How hard is it to get a loan for a hotel?
It can be difficult to get a loan for a hotel with a bank lender or SBA-backed loan.
If you’re unable to meet the requirements, they simply will not be able to provide you with the funding you need.
However, getting a hotel loan is much simpler with private money, or hard money lenders.
Hard money lenders are focused on the value of the deal and how you intend to repay the loan. They’re also interested in building real relationships with borrowers, for years of successful deals to come.
Do hotel loans need a down payment?
Hotel loans usually require a down payment, depending on how they are structured.
SBA loans require down payments of 10% to 15%, while banks often require up to 20% down.
Hard money lenders have more flexibility and skill in structuring the loan, so you may have other options such as borrowing the down payment amount or rolling it into the loan amount.
The requirements depend on your relationship with the lender, your experience, and the overall merits of the deal.
Who is lending for hotels?
If you’re searching for a hard money lender to finance your hotel business, Marquee Funding Group can help.
We are an experienced team of savvy real estate investors and loan originators capable of structuring mortgage options for unique business and owner-occupied loan scenarios.
We offer the following loan options:
- Same-day approvals
- Closing in as fast as seven days
- Common-sense underwriting
- Loan amounts from $50,000 to $20 million
- Loan-to-value (LTV) up to 70%, deal-specific
- Purchase money loans
- Rate-and-term refinance and cash-out refinance
- Owner-occupied and non-owner-occupied consumer or business purpose
- Single family, multi-family, commercial, industrial, and land loans
- Construction loans, including ground-up, fix-and-flip, fix-and-occupy, and value-add
We hope our hotel loans guide has helped you understand your options so you can move forward in confidence.
Reach out to our team today to tell us about your unique real estate transaction or ask how hard money works, especially if you have been unable to get a hotel loan with a traditional bank lender.Whether your deal is simple and straightforward or challenging and unusual, we can help. Submit your loan scenario today.