Over 80% of hotels in the US are franchised, and maybe you’re ready to join the trend. However, before you open your doors and welcome guests, you’ll need to secure the right financing for your hotel.
The good news is that there are plenty of options available for you, from traditional bank loans, to SBA loans, to private equity, to bridge financing. Choosing the right type of loan puts you in a far better position as you take the hotel on. Here’s a quick overview of the different hotel loans.
SBA Financing for Hotels
SBA hotel loans offer millions in funding for both franchised and independent hotels, including ground up construction, refinancing and the acquisition of existing hotels. A significant benefit of this financing option is that it is generally priced more competitively than a conventional bank loan. You can also choose a longer loan term than what you might get at a traditional bank.
What this all adds up to is more money in your pocket when you close on your new hotel.
Bridge Loans
A bridge loan is a short-term loan that’s used to bridge the gap between a property closing and permanent financing. Bridge loans are often used to close a deal quickly, as they allow you to buy the property and get started collecting revenue right away. A typical term for this type of financing is 6 months, but some lenders will extend it for up to 2 years if needed.
Conventional Hotel Loans
Conventional loans are the most common type of hotel loan, and they can be obtained from banks or other financial institutions. Most conventional loans require strong credit for applicants to qualify, and the bar is set by the lender rather than by any published standard. The lender will also impose additional requirements, such as more money for the down payment.
Even though conventional loans are a little stricter than they used to be, they’re still a solid choice for financing hotels.
Loan terms range from 5 to 10 years, with amortization lasting up to 25 years. Pricing is generally competitive — conventional debt is typically priced below shorter-term, transitional financing such as a bridge loan.
Private Capital
You can also work with private investors to fund your hotel. However, this type of financing carries more risk than conventional loans or SBA loans. You’ll need to find an investor willing to take on that risk, and you might have to pay a higher interest rate in exchange for that capital.
Finance Your Franchise With the Right Help
We hope this article has helped you understand some of the different types of hotel loans available. It’s best to know what kind of financing you need before choosing a lender.
If you are currently looking for a loan, we would love to help! We know what a franchised hotel has to show to clear underwriting, and we work to match the deal with a lender whose terms fit the plan.
Explore CMBS hotel loans for franchise hotel acquisition or refinance.
Our goal is to work with you in finding a structure that fits your business plan. Please Contact us today so we can find out more about your business.
Frequently asked questions
What percentage of hotels in the US are franchised?
Over 80% of hotels in the US are franchised.
What are the main financing options available for a franchise hotel?
The main financing options for a franchise hotel include traditional bank loans, SBA loans, private equity, and bridge financing.
What are the advantages of SBA loans for hotels compared to conventional loans?
SBA hotel loans are generally priced more competitively than conventional bank loans and offer longer loan terms, resulting in more money saved at closing.
How does a bridge loan work for hotel financing?
A bridge loan is a short-term loan used to bridge the gap between a property closing and permanent financing, with a typical term of 6 months that some lenders may extend up to 2 years.
What are the loan terms and requirements for conventional hotel loans?
Conventional hotel loans require strong credit, typically have loan terms of 5 to 10 years with amortization up to 25 years, and lenders set their own down payment and qualification requirements.
What are the risks of using private capital to finance a hotel?
Private capital carries more risk than conventional or SBA loans, and borrowers may have to pay a higher interest rate in exchange for the capital from private investors.
