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How Long Does it Take to Close a Hotel Loan?

This question is often asked because it’s important to all parties (the seller, the buyer and other parties involved in the transaction) and everyone wants to close as quickly and as efficiently as possible.

The short answer is it varies. For example, we recently closed a hotel loan in 5 days. The borrower came to Hotelloans when it became clear that their lender was not going to be able to close the loan before the contract deadline. Bridge financing was used so the borrower could close on time and not lose their earnest money.

There are several things that can determine how long it will take to close a hotel loan. These include the following:

  • The type of loan being used. Some loans close faster than others. For example, a bridge loan can close in just a few days. CMBS and Conventional loans can close as fast as 4-6 weeks. SBA lenders have significantly reduced the number of days it takes to close. Years ago it took months. However, Preferred SBA Lenders (PLP Lenders) can typically close within 4-6 weeks of the issuance of a term sheet.
  • How long it takes to get the appraisal and other third-party reports completed. This can vary by location. For example, in some areas an appraisal can obtained within a week or two. In other areas in may take longer.
  • How quickly the seller and the borrower provide the information needed to the lender who is providing financing. Closings are often delayed simply because the lender cannot get the necessary information from the seller and buyer to move the loan forward in a timely manner. Also, it’s important that the information provided is thorough and complete or the closing could be delayed.
  • The experience of the lender. Hotel transactions are different than other types of real estate loans so it’s important to use a lender that has a deep understanding of hotel financing. Closings often take much longer than necessary when the lender that is chosen doesn’t have the hotel lending experience needed to close the loan quickly and efficiently.

In summary, there are several factors that determine how long it takes to close a hotel transaction. With that in mind it’s important to go with the right loan type for the project and the right lender who has the hotel lending experience needed to close the loan as efficiently as possible. Finally, it’s important that both buyers and sellers provide the lender with the information they need to move the loan forward with no delays.

How Much Money Do I Need to Put down to Buy a Hotel?

One of the first things we do at when we talk to a borrower who is looking for financing to buy a hotel is determine what the most important thing is they want to accomplish (besides buying the hotel of course).

  • Do they want the lowest interest rate possible?
  • Do they want a non-recourse loan?
  • Do they want the lowest prepayment penalty possible?

These are all important, but if putting down the least amount of money possible is the goal, there are several ways this can be accomplished:

Benefits of an SBA loan for the purchase or refinance of a hotel property:

  1. Obtain an SBA 7A, SBA 504 or USDA loan to buy the property. Government loans like these can potentially go up to 85% or even 90% of the purchase price. This means the borrower is only putting down 10% to 15% of the purchase price. In the past, SBA or USDA loans had a reputation for tons of paperwork and taking months to close, but his is no longer the case. In fact, will take care of the paperwork for you – and we recently closed an SBA 7A loan in less than 30 days.
  2. Offer additional collateral for the loan. If the borrower has equity in another hotel, other commercial real estate or even their primary residence, this can often be used as additional collateral to get a higher loan amount resulting in less money down.
  3. Ask the seller to finance part of the purchase price. If the seller of the hotel is willing to finance part of the purchase price that can further reduce the amount of capital required from the borrower.
  4. Pledge cash flow from another hotel or business. If the borrower owns another hotel or business, cash flow from that business can be pledged to get the lender more comfortable with the transaction and get a higher loan amount. No real estate is pledged, just cash flow from the hotel or business.
  5. Bring in an equity partner. If you have identified a property with a lot of upside potential but don’t have the capital to put down, utilizing an experienced equity partner can mean the difference between securing the property or missing out on the opportunity. 

I Don’t Want an SBA Loan, What Other Options Do I Have?

While SBA loans are an excellent way to finance a hotel, at we have many ways to finance the acquisition, repositioning or construction of a hotel property. These include Conventional Loans, CMBS Loans, REIT’s, Mezzanine Financing, Private Capital and other funds.

There are a number of factors that determine which loan type is right for your transaction. For instance, where is the property located? What is the purchase price? What is the borrower’s experience level? How has the property been performing? Is the property a turnaround property or is it stabilized? Are renovations required after the property is purchased? The answers to these questions and others determine what loan type is best for what you want to accomplish.

Should I Get a Non-Recourse Loan?

A non-recourse loan is a type of loan secured by real estate, in this case, a hotel.  If the borrower defaults, the lender can seize the property but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted loan amount.    

Every type of loan available for commercial real estate is different, but some loan details may be more important than having a non-recourse loan.  A non-recourse loan like a CMBS loan has attractive rates however, the prepayment penalty is very aggressive.  If the borrower’s intent is to refinance or sell the property within a few years, the high prepayment penalty may make the non-recourse loan less attractive.  In addition, a non-recourse loan will generally lend up to 65% of the hotel’s value.

A non-recourse loan is a great option because the borrower’s assets are protected, and rates are typically low.  When pursuing financing for a hotel it’s important for borrowers to know what their business goals are.  If a low down payment or a small prepayment penalty is more important than having a non-recourse loan, then the borrower may want to consider some other type of financing.

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