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No Hotel Loan For You!
By: Cameron Brown
Meeting the requirements to get a decent hotel loan from your local lender can
be difficult but not impossible. Let’s face it, what lender wants to put money
up for a roach infested dump in downtown Detroit? You’d have to get a separate
loan just for the insurance.
Most lenders will only finance hotel properties that are “flagged”. In other
words, most banks, public and private lenders will only provide hotel loans to
individuals who are starting a franchise under certain major hotel/motel chains
such as Best Western, Hilton, Super 8 and other well-established hospitality
brands; Sid’s Sleep Shack need not apply. In addition to being a virtual
nation-wide brand, the particular establishment in question needs to show a
profitable operating and occupancy history.
Even if you want to build a new hotel/motel from the ground up, forget about
starting your own brand; most lenders will only provide hotel loans to build the
same “flagged” hospitality companies as they will for the purchase of an
existing property. Besides having a well-known flag, getting a hotel loan for a
new property is possible provided it is well located and can be provided with
strong management.
Lenders reserve the best hotel loan rates and terms for properties that are well
cared for, attractive, and have pleasing amenities like pools, wireless
internet, cable, and complimentary continental breakfast buffets.
Hotel loan terms will, of coarse, vary from lender to lender, but most banks and
other investment capital institutions provide 5, 10, or 20 year loan terms for
amounts up to $2,000,000. These loans can carry an interest rate ranging from 7%
to 8% and typically carry a recourse clause, although some lenders are more
flexible than others in this regard.
Just a brief note on recourse loans; this type of loan hold your personal assets
liable in the event you default on the hotel loan-seriously bad news if your
franchise doesn’t turn out to be as successful as you originally thought. This
is the lender’s way of protecting its assets by separating those who are serious
about the hotel business from those that just want to try something new. If
you’re not familiar with the details of this loan, you should either educate
yourself thoroughly first or look around for a non-recourse loan. The terms of a
non-recourse loan simply hold the hotel, or whatever else you spent the loan
funds on, liable in the event you default.
If you’re planning on borrowing over $2,000,000 to build or buy a larger
hotel/motel, the interest rates may be a little better, although not much.
Interest rate lows can be more favorable by up to a half percentage point, while
to current ceiling is still hovering around 8%. With a larger hotel loan comes a
longer loan term, usually 20 to 25 years. One boon of a larger loan is that most
institutions offer limited recourse in the event of a default.
Meeting hotel loan requirements can be difficult, after all, this is unlike any
other kind of real estate loan and as such has its own rules, terms, and
procedures. If you think the hospitality business may be for you, make sure you
choose a lender who will take the type to answer questions to your satisfaction.
With how the market is these days, there are plenty of lenders out there
competing for your business. Take your time and choose carefully from the
several loan products they offer; if you’re not satisfied, move on. The hotel
business can be both challenging and rewarding. Depending on your location,
service, and financing, it can be a great way to build long-term wealth.
About the Author:
Cameron Brown is an internet marketer specializing in investment property. For
more information on how to benefit from a hotel loan, please visit http://www.sncloans.com/hotel-loan.html |
