How Do Hotel Management Agreements Affect Hotel Loans?

There are 132,228 hotels and motels in the US in 2022, an 8.3% increase from 2021. 

Owning a hotel can be a profitable business. However, like any property owner, a hotel property owner becomes responsible for many aspects of their buildings. These responsibilities include renovations, refinancing, and acquisitions. 

However, hotel owners cannot make these decisions alone. Instead, they must consult with hotel managers before making changes and spending money on the hotel. That’s why you need a hotel management agreement before getting hotel loans. 

Hotel management agreements are a crucial feature of any hotel financial deal. Below, we’ll explore the specific ways these hotel management agreements impact a hotel loan.

How Hotel Management Agreements Affect Hotel Loans

You may wonder what a hotel management agreement is. These agreements are hotel contracts between the property owner and the management company that operates the hotel. Most of these agreements serve as long-term contracts that outline several items. 

Some of those items can include:

• Management fees
• Operator responsibilities
• Performance standards

These agreements matter because managers run the everyday operations in hotels, including expense management, cash flow, and other financial work. Hotel management agreements can affect the value of your collateral property, making them crucial for hotel construction loans. 

It’s best to discuss your agreement proposals with hotel financing lenders before drafting the agreement. This way, you can see what effect your agreement can have on your hotel financing. 

What to Consider About Hotel Management Agreements and SBA Hotel Loans

Many people apply for SBA financing for hotels to pursue construction for their property. Once again, hotel management agreements can affect whether you receive SBA 504 hotel loans. 

First, lenders want to know that your venture will earn a profit. As such, they want to see proof that you’ve considered how to mitigate risks and pay back their loans.

That’s why the SBA often considers your performance standards. These clauses provide terms for ending the contract if the property stops earning a profit. These provisions can help hotel/motel lenders feel more comfortable providing funds for this venture. 

Similarly, many loans require a subordination, non-disturbance, and attorney agreement. Experts abbreviate this by calling it an “SNDA.” These elements help owners, managers, and lenders.

How does this help? Essentially, these agreements require all parties to work together to mitigate risks for the other parties. These agreements make hotel financing lenders feel secure about lending to your hotel. 

Learn How to Get Construction Loans for Hotels

As you can see, getting a hotel loan isn’t as easy as calling hotel construction lenders. Instead, hotel owners must show that their initiative will improve their building’s profitability. Luckily, a hotel management agreement can help verify this. 

A complete, well-prepared package moves faster than one the lender has to chase. That is the part we handle.

We use our lender relationships to place financing for hotel construction, acquisitions, and repositioning. All you have to do is contact our financing experts, who then match you with an appropriate lender.

See our recent hotel loan transactions closed across the country.

The lender issues the term sheet, and how quickly that happens depends on the deal and on how complete the package is when it goes out. Contact us today to get started.