Adequate hotel financing continues to be a major resource for U.S. hoteliers. New construction and renovation projects are typically complex and expensive, so here are ten things you need to know about your funding options and industry trends as we move into 2017.
USDA Loans. Department of Agriculture loans are a viable funding option depending upon property location. They offer competitive interest rates as opposed to conventional rates and allow for higher leverage. Check with your lender to see if you’re eligible.
SBA Loans. Small Business Administration loans continue to be great options for hoteliers that have never had this type of loan and meet the requirements. Some SBA loans offer longer amortization periods and interest only periods that help ease cash flow during the ramp-up period.
Conventional Loans. Conventional capital for new development and construction is likely to continue decreasing, even if you’re a highly experienced and solvent borrower. Due to fears of an overbuilt marketplace, conventional banks will continue to shy away from these projects.
Creative Lending. In some cases, conventional capital can be layered into a comprehensive loan package with other types of loan proceeds. This innovative method is used by some lenders to achieve adequate project funding.
PIP Loans. Property improvement plans can be financed using conventional or SBA capital. These loans allow hoteliers to maintain their liquidity by keeping more capital while completing necessary renovations.
Refinance. With the continuing pullback of CMBS and life companies from the hotel lending market, it’s important to work with a trusted lender who understands the marketplace and various loan structures. Consider a lender who is committed to providing viable refinance options that meet your goals.
Flexibility. Flexible payment options, inclusion of closing costs and sufficient working capital in the final financing package are huge benefits. Not all lenders have the capacity to offer this, but hoteliers should seek these advantages.
Interest Rates. The continued suppression of interest rates could be artificially inflating real estate values which may lead to tightened underwriting standards. Thus, hoteliers may find that financial institutions are lowering loan to value thresholds and increasing minimum debt service coverage standards.
Construction Costs. These will likely continue to rise as they have in the recent past, making accessible financing even more valuable for hoteliers.
Preparedness. Most lenders will require a franchise comfort letter and want your loan terms to match your franchise agreement. Maximize your readiness for financing by obtaining the proper documents and organizing all required information.