Hotel Financing: The 6 Best Types of Loans
This article is part of a larger series on Business Financing.
The best hotel financing has multiple uses, high maximum loan amounts, and low interest rates. Different types of loans serve different purposes, such as acquisition, construction, renovation, or maintenance, when financing a large, complex project like a hotel. Below, we have listed the six best types of hotel loans available and the best provider for each type of loan:
- JP Morgan Chase: Best conventional bank loan
- SmartBiz: Best SBA 7(a) loan
- Lendio: Best SBA 504 loan marketplace
- Smarter Finance USA: Best equipment loans
- Bluevine: Best business line of credit
- Kiavi: Best hard money or private money lender
Provider | Loan type | Rates | Maximum amount | Maximum term | Minimum credit score |
|---|---|---|---|---|---|
Conventional Bank Loan | 5% to 9% | $25 million | 10 years | 680 | |
SBA 7(a) | 4.75% to 7% | $5 million commercial real estate (CRE) $350,000 working capital | 25 years | 680 | |
SBA 504 | 2.5% to 3% community development corporation (CDC) 4% to 10% lender | $14 million | 25 years | 680 | |
Equipment loans | Starting at 5% | $500,000 | 24 months | 600 | |
Business line of credit | Starting at 6.2% | $250,000 | Six or 12 months | 625 | |
Hard money | Starting at 4.95% | $3 million | 12 months | 600 |
JP Morgan Chase: Best for Loan Type
With multifamily loans of up to $25 million, JP Morgan Chase is our choice for the best conventional bank loan for hotel financing. Conventional bank loans can have a variety of uses for hotel financing, including renovation, acquisition, refinance, new construction, franchising, and working capital. JP Morgan Chase requires the business owner to have at least a 680 credit score and a minimum business DSCR of at least 1.25x.
You can enter your contact information on the company’s website, and they’ll reach out to you to get the process started. Stop by JP Morgan Chase’s website for more information.
SmartBiz: Best SBA 7(a) Loan
SmartBiz is an excellent choice when considering an SBA 7(a) loan. The Small Business Administration (SBA) has many specific requirements, so check out our guide to SBA 7(a) loans before applying. You can look at hotel renovation, acquisition, refinance, and franchising loans through their commercial real estate program, with loans up to $5 million. You can also get working capital loans of up to $350,000.
You can begin the application process directly on SmartBiz’s website. Check out the company’s website for more information.
Lendio: Best SBA 504 Loan Marketplace
Lendio is an excellent marketplace for SBA 504 loans. An SBA 504 loan is a combination of two loans: one from a lender and one from a nonprofit organization known as a CDC. You can get financing of up to $14 million for hotel renovation, acquisition, refinance, equipment, franchising, or working capital.
Like 7(a) loans, SBA 504 loans have specific requirements. Three important guidelines to remember before pursuing an SBA 504 loan are:
- Property must be owner-occupied
- Jobs must be created
- Business must have a net worth of less than $15 million
Check out Lendio’s website to get matched up with an SBA 504 lender that can help you with your hotel financing needs.
Smarter Finance USA: Best Equipment Loans
When you need financing for hotel equipment, furniture, or fixtures, Smarter Finance USA has a great equipment financing product. Interest rates are low because the equipment purchased serves as the collateral for the loan. In most cases, additional collateral isn’t required. You can borrow up to $500,000 for the final touches you need for new hotel construction, a much-needed renovation, or just a quick makeover of your lobby and conference rooms.
Although you cannot apply directly through the Smarter Finance USA website, you can input your information through the website. A customer service representative will reach out to get the process started. Stop by the Smarter Finance USA website for more details.
Bluevine: Best Business Line of Credit
Whether you need funds for a hotel renovation, hotel equipment, or working capital, Bluevine and its business line of credit product is a great option. You need at least $40,000 in monthly revenue and at least 24 months in business to qualify. With starting interest rates as low as 6.2%, it’s a great way to get the extra funds needed for small renovations for your hotel. It also gives you access to necessary working capital during construction or renovation.
You can apply directly through Bluevine’s website, and you can connect your QuickBooks Online directly through the website to expedite the application process. The application takes just minutes, with approvals within five minutes. Visit Bluevine’s website to apply.
Kiavi: Best Hard Money or Private Money Lender
A hard money lender, also known as a private money lender, can help with hotel fix-and-flip projects and long-term investors looking to renovate a hotel. Kiavi is an excellent choice for a hard money lender due to fast funding times, no hidden fees in closing costs, and no personal money qualifier. Kiavi provides up to $3 million loans for 12 months with funding in five to 15 days.
Experienced flippers―five or more in 24 months―can get better rates and dedicated managers. Whether this is your first hotel fix-and-flip or you’re a flipping veteran, Kiavi is an excellent choice. Visit Kiavi’s website for more information.
Other Types of Hotel Financing
Because hotel financing can be complicated, sometimes traditional lenders cannot fund hotel projects due to the large amount of capital required. You may need to consider a private commercial real estate lender or a real estate investment company if you’re unable to get funding from the sources listed above.
Who Hotel Financing Is Right For
Hotel financing can cover a wide range of needs. Hotel loans are most often used for one of the following reasons:
- Buying an existing hotel
- Building a new hotel
- Renovating an existing hotel
- Purchasing furniture, fixtures, and equipment
- Covering working capital needs
Hotel Financing Qualifications: What Lenders Look For
In addition to the general qualifications listed with each lender above, other considerations are specific to the hotel industry, including:
- Net operating income: This is the amount of income generated by a real estate investment property.
- Revenue per available room: This amount is calculated by multiplying the hotel’s average occupancy rate by the hotel’s average daily rate per room. There are no set requirements for this calculation as they’ll vary depending on the geographic market of the hotel.
- Debt yield: This is calculated by dividing net operating income by the potential loan amount. The calculated percentage indicates the present ability to repay the loan, and a 10% or higher debt yield is generally considered acceptable.
- Branding: Hotels with a major chain name attached to them will find that qualifying for a loan is easier than for a small hotel because the brand name carries value to the lender.
Bottom Line
Hotel financing is essential to acquiring, maintaining, and expanding your hotel business. However, it can be very complicated, due to the large amounts of capital typically required with a hotel loan. Therefore, it’s imperative to meet with your financial advisor before pursuing hotel financing to have a strong business and financial plan in place.
It’s also important to understand the general requirements any lender will have before getting a small business loan. Because of the large amount of capital and the considerable risk to lenders involved, expect to need strong credit and financial qualifications to get hotel financing.
