What Hotel Financing & Loan Options Are Available

If your dream is to invest in your own hotel or if you hope to expand an establishment you already own, there are a number of financing options available to you. Among the different types of hotel financing are methods that are traditional and some that are less traditional for those who have had financial struggles in their past. Take a closer look at some of the options that may be available to you.

If you are seeking hotel funding for a small hotel, then using a 504 program may be a way to give you some funds. This loan may be able to provide you with up to ninety percent of the financing you need. The 504 loan is often underutilized, but it is an effective way to finance a hotel. This loan is often easier to obtain because it reduces the risk to the lenders. Instead of one lender providing the funding, the amount of the loan is shared by three parties. A traditional lender lends fify percent, then the business owner puts up ten percent in equity and the final forty percent is lent by a CDP, or Certified Development Program. For example, if you have a $100,000 in equity, you can purchase a hotel valued at $1 million, with the lender submitting the bulk of the funds and the difference met by the CDP. This type of loan is often available for amounts in the millions.

Another advantage of a 504 loan is that it not only provides financing for fixed assets, such as real estate, but can also be used for improvements to older hotels. This allows for necessary improvements, such as renovation, landscaping, and updating of your hotel.

A couple of other options include the working capital loan and an SBA loan. If a hotel is immediately self-sufficient then a working capital loan can also be obtained to meet the day to day operations of your business. This loan option offers some clear advantages if other types of hotel financing are not available to you or if you hope to diversify the types of loans that you carry.

Another type of loan that would be appropriate as a hotel loan is the SBA 7(a) loan. This type of loan is the most basic and common loan. The SBA provides a 75% government guarantee on SBA 7(a) loans. Depending on whether you are purchasing, building, renovating, or refinancing the hotel, you may be able to obtain between 80 and 100% the hotel financing that you need. The maximum amount of these loan amounts reaches into the millions, but only on a limited basis. Talk with a financial advisor to determine which loan would be the most beneficial for your situation.