SBA Hotel Refinance Loans
Hotel refinance rates are attractive and there are numerous programs to choose from.
SBA 7a program – The 7a is a good loan if you are looking to refinance your hotel because it is available with a 25 year amortization. It is not always the best option because it can be difficult to get a fixed rate and the SBA “Guaranty Fee” can be quite large on the bigger loans, but quite often it is the ONLY option available to hoteliers or motel owners – especially independently owned properties or motels. Rates can be as low as Prime + 1% or as high as Prime +2.75%.
The 7a is also easier to qualify for if you have a transaction that is imperfect in some way (credit, cash flow, loan to value, property type, etc.).
One saving grace for the program is that it only has a 3 year prepayment penalty and the penalty is only 1% in the 3rd year, so it can also serve as good temporary financing.
USDA Hotel Loans
USDA B & I program – The USDA Business and Industry program is another option to get a good rate for the refinance of a hotel. It is available with a 30 year amortization, but the program is only for properties on the outskirts of cities and in rural or semi-rural areas, although many properties on highway interstates will qualify.
It can also be tough to get anything other than a 5 or 7 year fixed rate AND the USDA has what is called a “10% net tangible equity requirement” which can be hard to overcome depending on how long you have owned your property and how much you have depreciated it.
Rate Update: USDA hotel refinance rates are anywhere from high 4’s to mid 6’s as of July 2019 depending on the creditworthiness of the borrowers and the cash flow of the hotel.
SBA Refinance and Expansion Loan
SBA 504 Refinance (Expansion) program – This is a section of the 504 underwriting guidelines that has gone largely unnoticed since it became available, but it can be the right fit for certain situations. It has real value for the right borrower as it allows existing hotel owners to refinance their current properties while purchasing another hotel or while expanding their existing hotel.
The key is that you can only refinance an amount equal to half of what you are spending on a new property or an expansion of an existing property. One caveat: if financing a new property, it will need to be cross-collateralized with the existing property.
It is also worth noting that the guidelines allow you to pledge equity in an existing hotel in lieu of a down payment on another, so this program could be a way to buy a new property without as much of a down payment.
The rate for the 504 first mortgage is negotiated between the borrower and lender and the 25 year fixed rate second mortgage is currently 4.08% as of July of 2019.
SBA Refinance – 90% Loan to Value with Cash Out
SBA 504 Refinance program – Hotel refinance rates for the 504 program are a very good value. Many hoteliers missed out on the possibility of refinancing their hotel back when this program was temporary, but it has since become a permanent part of the 504 program and it is has helped a lot of hoteliers get good long term (mostly) fixed rate financing.
The 504 refinance option allows for loans up to 90% loan to value with some cash out and offers a first mortgage that is usually fixed for at least 5 years and a second mortgage that can be fixed for up to 25 years. For more info on the program click here.
Hotel Refinance Rates – non-SBA or USDA
Conventional Financing – Conventional hotel refinance rates are available with very attractive terms, but you typically must meet the following conditions to get the lowest rates:
- Higher end flag (Hilton, Marriot, etc.)
- Large or “secondary” city location
- Larger loan amount – typically $3 million or more
- Consistently profitable for the last 3 years
- Low loan to value – usually 65% to 75% or less
If you can meet all of the above terms you may qualify for excellent rates with terms of up to 10 years with 25 to 30 year amortizations.
Hotel Bridge Loans – Hotel Bridge Loans are now available to refinance a hotel and convert or renovate existing properties. Terms will typically have an initial interest only period followed by principal and interest for a combined total of up to 3 years and with amortizations of up to 25 years.
Funds can be used for major renovations, PIPs, FF&E and equipment.
Contact me for more info at jking (at) green commercial capital (dot) com or 1-800-414-5285