Running your business comes with significant challenges, and three are some challenges you can overcome with the help of a large amount of capital. Similarly, if you own a hotel, there would be a lot of operations that you have to run, but what if you cannot run them because of the lack of money? However, you don’t have to worry about it when you can have hotel financing. You can easily invest in your business, cover the cash flow, and get the required amount of money with this financing. Whether you want to expand your hotel, purchase equipment, or renovate it, hotel financing is the best solution.
Now, you will be wondering where you can get this loan. There are various sources of getting this loan, but they vary in terms and conditions. But, if you don’t know much about them, you can count on BitX Funding. We are the financial expert’s company that gives you the loan you need.
A Short Overview of SBA Hotel Loan
SBA hotel loan refers to the financing that you get through the U.S. Small Business Administration. They offer you these loans to fulfill your business requirements, and you can use these loans to renovate, gain working capital, purchase equipment, and much more.
But, it does not come directly from the small business administration and works with approved lending partners, including local and national banks. Moreover, it includes non-bank lenders and non-profits to ensure a portion of the loan proceeds if the borrower cannot repay the loan amount.
Thus, it allows the lenders to approve funding for small business borrowers who cannot get approval for the loans because of their small business. They think it would be risky to lend money to such business owners. So, let’s jump into it and explore the types of SBA hotel financing.
Types of SBA Financing for Hotels
Small business administration does not offer loans according to the hotel’s financing requirement. But the most suitable loans for the hotel are the 7(a) loan program and the 504 loan program because these two loans meet the most common requirements of the hotel business.
SBA 7(a) Loan
SBA 7(a) is the most common loan for hotel financing because of its lower interest rates and extended repayment terms, which are available for up to $5 million. That is why most hotel owners like to have these loans, as they meet their hotel financing needs.
You can use this loan for construction, commercial real estate, working capital, and business acquisitions. The standard features of this loan are;
Loan Amount: up to $5 million
Interest Rates: between 5% to 10%
Repayment Terms: up to 7 years, 10 years for equipment loans, and 25 for the commercial real estate
Fees: fee is 0% to 3.5%, but it varies according to the requirement and the loan’s maturity.
SBA 504 Loan Program for Hotel Financing
These are one of the market’s most complex types of hotel financing. They may look attractive to most business owners because of their fixed rates and higher loan amounts. But, it combines a loan from a non-profit with a loan from a bank lender to make a long-term loan with low-interest rates.
This unique combination makes them 504 loans that are more easily accessible to hotel borrowers who are trying hard to get an SBA hotel loan. The following are the main points of the loans;
Loan Amount: Up to $5.5 million
Interest Rates: 5% to 6%
Fees: 3% of the loan
Repayment Terms: 10 to 20 years
Working on SBA Hotel Loans
No matter for which purposes you are taking the loan, the availability and the terms of these loans depend on the following key factors:
Real Estate Value
The building of your hotel represents a vast majority of your field asset, and the value of the real estate will largely dictate the loan amount available. In the case of an SBA hotel loan for the real estate purchase acquisition, the loan amount will typically be between 85% to 90% of the real estate purchase price.
And the loans for the constitutions and refinancing, the loan amount is fixed to 80% to 85% of the total real estate value.
This is the formula that lenders use in the case of real estate or business acquisition funding. It represents the ratio between the amount of the loan and the total value of the asset being purchased by the owners.
One of the most significant benefits of an SBA hotel loan is financing a property purchase or hotel acquisition, in case the hotel property works as collateral. It secures the loan’s value, and there would be no need to sign a personal guarantee or offer up your real estate representation as collateral.
According to them, if you need to reduce the amount of cash required, providing additional collateral is the primary way to increase the loan-to-ratio value for your financing agreement.
How to Get an SBA Hotel Loan?
Before you make up your mind to go for an SBA Hotel loan, make sure you need for which purpose you need that loan. Is that will fulfill your hotel requirements, and will you be able to repay it on time? Here are the following steps that you need to take care of while applying for hotel financing;
Identify your Borrowing Needs
The way to the loans starts when you identify your needs. Moreover, it is related to questions such as;
- Property value
- Funding that you can easily afford
- Which SBA loan program suits your business well?
Confirm your Qualifications
Before a lender gives you approval for the loan, he will make sure to identify the five factors;
- Personal Credit History
- Cash Injection
- Availability of Collateral
- Property Appraisal
- Strong Business Plan
Collect your Documents
If you think the lender will approve your loan request, you should prepare the necessary documents. A list of the document is as follows;
- Business tax returns
- Property tax returns
- Personal tax returns
- Business Plan
- Property Listing
- Business debt schedule
- Business check
- Bank statements
- Balance sheet
- Profit and loss statements
- Purchase agreement
All the above documents are necessary to keep with you and will help you prepare your application. But an SBA hotel loan takes time because it is a lengthy process compared to other businesses. After all, it includes commercial real estate.
Submit your Application
When you fulfill your lender’s requests and the documents at the time to submit your application, after the submission, the lender will go through the application and the papers to ensure that you fulfill the criteria.
And you are done with your loan request.
A Quick Wrap-Up!
To summarize the discussion, we can say that hotel financing benefits the business, whether you’re a startup or have a well-established company. It helps your business as you can quickly fulfill all your needs with this. But people sometimes don’t understand the importance of these loans, as they don’t know much about them. If you are one of them, you can talk to the financial experts of BitX Funding. We are one of the well-reputed companies with experts with years of experience dealing with such economic issues. We will discuss the business objectives, why you need the cash, and suggest the best loan type that suits your business. This way, you can make your hotel stand out in the market.