Found a hotel that you plan on purchasing and are now examining options for your hotel loan? You will quickly discover that unless you're planning on putting 35% down or more (and in the form of cash, not equity from your house for example), that the hotel has a strong flag and great historical financials your only option will be either the SBA 504 or the SBA 7a programs.
As an example on how conservative things are getting, we are currently working with a borrower that is intending to purchase a Comfort Suite. This individual has a net worth over $15,000,000 with $2 million in cash (in his saving account), 20 year experience and owns 6 other hotels, all of the same size and similar flags and was told by his primary bank that he would have to go the 504 route and still put 35% down.
This leads into a bigger point. Not all SBA lenders are the same. Not all SBA lenders structure loans in the same way. It pays to be informed and to deal with knowledgeable professionals. Also the process of an SBA loan is really not that more cumbersome than any other commercial mortgage especially when you work with the right institutions that know the process inside and out. It is very possible to close an SBA loan in 45 days. Much of the issues that caused the bad press that the SBA received (and a lot of it deserved) has been resolved. And most importantly they unlike so many other banks and lenders are still funding deals.
Generally speaking the SBA 7a is reserved for loan under $2,000,000, while the 504 can go up to $7,000,000. The SBA is a Prime plus rate which MOST of the time floats (we work with 2 banks that offer this as a 5 year fixed 25 year amortization loan). The 504 program boast long term fixed rate financing, like 5 or 10 years. However most importantly, both options provide 85% loan to cost and or loan to value financing which is becoming very rare in this market.
