Hotel Financing Types

Hotel financing types typically come in one of four forms. These products are usually specialized for such large commercial ventures. Unlike acquiring other kinds of real commercial property, such as retail space, industrial space, hospitality differs a bit. Fortunately, there are various loan types available for financing a hotel purchase. Better yet, these typically offer good terms, including long repayment schedules, and competitive interest rates. Read on to learn about hotel financing types and what you can expect.

Types of hotel financing generally come in four different arrangements. These financing models are mostly tailored to the acquisition of hospitality space making them an ideal fit. These include, but are not necessarily limited to, conventional commercial bank loans, SBA 7(a) loans, SBA 504 loans, and USDA B&I loans.

These four different types of hotel financing can be obtained at interest rates varying between 5 percent and 9 percent, with terms generally extending up to 25 years. However, this is a general rule of thumb, as some lenders will offer more affordable rates and/or shorter or longer terms. For instance, investors might be able to secure a hotel loan with a lower interest rate, combined with a shorter repayment cycle.

Of course, it is important to shop around and compare different products in order to find the best fit. Now, here’s a quick look at hotel financing types:

1. Conventional commercial bank loan. Perhaps among the most familiar, is the traditional commercial Bank loan. This type of hotel financing is generally offered by the larger banking firms, with rates ranging from 5 percent up to 9 percent, although some institutions do offer lower and higher rates. Terms for commercial bank loans can be as short as 10 years, up to 25 years.
2.  SBA 7(a) loans. These types of loans are typically used to purchase an existing commercial business, and generally top out at $5 million. So, these are most often used to purchase an existing hotel already in full operation.
3. SBA 504 loans. These types of loans are designed to purchase many types of hard or fixed assets, such as commercial real estate, including hotels. However, one requirement for this loan is to obtain said asset at below-market-rate. Meaning, this would mostly apply to existing hotels that are financially troubled and need to turn around the assistance.
4. USDA B&I loans. The Business and Industry Guaranteed Loan Program is for rural environments. In other words, this loan is restricted to real commercial property located in rural areas, intended to boost the local economy by providing more local jobs.