Hospitality Loan Options

July 6, 2023

What is happening in the world of hospitality loan options? Which road should you take?

Are you looking to purchase an existing hotel? Or do you already own a property and are facing an upcoming loan maturity? Are you trying to figure out the timing of a refinance or considering remodeling or reflagging, rolling that into a refi?

Lenders have become more selective about hotel loans. In addition, borrowers have to contend with current high interest rates.

What are the best ways forward?

Different Loan Products to consider:

  • Conventional Loans: There are a few lenders who offer conventional loans, often at fixed prices. However, these loans are typically reserved for the highest echelon of hotels and for larger loan amounts. They also tend to require greater equity injections.
  • USDA Rural Hotel Loans: If your property is not in the heart of an urban area, you may be eligible for a USDA loan, designed to support businesses outside of cities. These loans often have variable interest rates but are adjusted infrequently (some as few as every five years).
  • SBA (Small Business Administration): SBA loans are in many cases the most affordable loan products for hospitality owners with properties of all types, from economy to luxury. Their variable rates mean that when interest rates do eventually go down, borrowers will benefit. In addition, GRP Capital has relationships with many preferred lenders, which decreases the time to close.
  • Bridge loans. Sometimes a transaction needs to occur quickly. This is especially true if the seller is courting multiple buyers and the first one in the gate gets the deal. Bridge lending offers a quick, temporary solution, but sometimes with a high short-term interest rate.

Special Considerations for Purchasing a New Hospitality Business:

• Does a New Purchase Fit into Your business plan? There are hospitality businesses that are for sale now. It could be that the seller is ready for a new project. Or it could be that the seller’s note is coming due and they, too, are weighing their own options. Talk to us about the range of interest rates that you could be paying for a new loan. Then determine if this is affordable. We highly recommend doing this before signing a PSA (Purchase Sale Agreement) or paying any earnest money.

• Determine the True Expenses of a New Business: New businesses have many expenses. We always critically review the seller’s financial statements with our clients. It’s important to understand which fixed costs buyers will be taking on and which costs were ones that will not recur. Of particular interest are the insurance costs, the labor costs, the franchise agreement (which we can give guidance on) and of course the actual cost of the loan.

If you would like to discuss hospitality loan options or any other business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

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