Hotel Loans
- on 06.26.10
- Filed Under Business
- 9 Comments
Buying an existing hotel is a great business venture – so is building one. People are always in need of a place to stay that is comfortable and has a pleasant atmosphere and other features nearby. Getting a hotel loan is an important step, even necessary in order to get your new business going. Here is what you need to know about hotel loans to get you started.
The first thing you need to know about hotel loans is that they are not easy to obtain. While this may sound a little negative, you do need to know that most lenders will not lend for the purchase of a hotel unless it meets some rather strict qualifications.
The Qualifications
Most lenders, whether direct or brokers, will require that the hotel come under the “flag” or name of a major hotel chain. Independent hotels, and small chains are just about out of luck these days. Even with the brand name, however, there are still a couple of other major hurdles that may stand in the way.
The hotel to be purchased also needs to be in a good state of repair. Beyond its overall condition, though, it also has to be attractive in appearance. This assures that its current rate of business can continue – or even possibly increase – without needing a separate loan for renovations. As you can see, many lenders may not provide a commercial loan for new hotels.
A third qualification is that the hotel needs to show that it has had a good profit over the past couple of years. So, the books will need to be closely examined to make sure the hotel has been doing well – with the hopes that it can continue to do so. Apart from a past history of success, you will find it difficult to get this kind of commercial loan – at least at a good interest rate. There will probably be a minimum requirement of a profitability of 1:1.1 or more, DSCR values.
Personal Qualifications
The building itself, and the business, is not all that will be considered when you go for a hotel loan. The buyer’s own personal experience in the hotel business will also most likely be questioned. A number of successful years experience, as a hotel manager may be needed, too. Some lenders will not lend to someone unless they are going to be both the owner and the manager. Others may require that a proven manager will be brought in to manage the hotel.
Loan Terms
The terms for hotel loans, like any other kind of loan, varies. Being that it is a commercial loan, the interest rate is usually a little higher than a residential loan. In fact, it is possible that a hotel loan will have a slightly higher interest rate than even other types of commercial loans. Also, do not expect a 100% loan in most cases, although some hotel loans will provide that much. Typically, you will find that most range between 70 to 80%, or so.
The payment terms will provide an average range from 20 to 25 years in most cases, but it may amortize in more than that – meaning you need to make a balloon payment at the end. You can find your hotel loan at most commercial lenders’ Web sites. Values start out somewhere around $250,000 and go upwards – enough to cover most existing hotels or build new ones.
Related posts:
- Hotel Loans – the Guidelines are Changing It’s March 2008 and I’m currently working on a...
- Hotel Loans – Hotel Business Loans – Hotel Financing Get a mortgage business for a hotel property is...
- Hotel Loans, All is not Lost Hotel loans and hotel financing has become much more...
- Church Financing Loans with Low Recourse Loans Financing, Loans and Commercial Finance for Churches at Church-Financing.com....
- Hotel Loans – Now in the Credit Crisis Where do you start? Hotel loans whether for purchase...
Related posts brought to you by Yet Another Related Posts Plugin.
You would not obtain money in the US for this, no one will lend for property outside their legal jurisdiction.
You will have to use a bank in Costa Rica.
Expect to pay at least 40% upfront in cash. (same as in the US)
1. Get property appraised first. You may be off on your calculations, but get it appraised first to see if your deal is viable.
2. Next if the valuation is high enough, contact a bank to get a reconstruction loan. This will be a loan for aquisition wrapped with a construction loan. The construction loan part will be variable and paid out of a drawing account payable at stages of the reconstruction. The stages and estimated costs will be estimated at the beginning of the loan process defining what defines completion of a stage and how much money will be released.
3. Upon completion the loan will convert to a permanent with the entire amount amortized over the target period ie 25yr.
You will want to get a good flag and mgmt company, but more importantly you are going to need to carry some working capital as you should not expect to break even the 1st year especially considering the size of loans.
If you are interested you can contact me directly as I've consulted on similar deals. I can arrange Gen Contractors as well as permits and financing as well as help you with some techniques to minimize your exposure in the deal and maximize your ROI.
Good luck either way. Remember 90% preparation in these types of complex deals. Your financial structure will dictate your success.
Not really… that's really why credit cards exist.
For $100 million, you need to have a financial expert who can help you out find where to pool together various sources of funds to raise $100 million. That's a lot to come from one source.
Try venture capital firms
Then look for angel investors – start with Angel Capital Association http://www.angelcapitalassociation.org
Then work your way to the banks, assuming of course you've got collateral and equity investments
Again, what's with people's spelling? (above), anyway, you're talking about the toughest kind of loan to get right now. 2 years ago, no problem. If you have good credit, (670 or above) and if you can put at least 20% down, you might find some one to do this type of loan. I don't know where the hotel is, but it if is in a small town, start with the local small town banks. Don't even bother talking to someone unless he or she is at least a Vice President of the bank. With small town banks, you may even be dealing with the President and owner of the bank, so you won't get any bullshit promises from them. If they are willing to do the loan, small town banks often look at the value of the deal rather than just how you look on paper. It helps if they know the property, which they will if it is close to them. They have a vested interest in improving the area as well. Go in with a detailed estimate of the repairs and a written summary of the work you plan to perform,(written sort of like a resume of the property) as well as your intentions for the property. Even if it's not in a small town, go to a few local small banks rather than some one like Chase or Wells Fargo. Also, have you tried approaching the owners about short term owner financing instead? Good luck
First arrange to see the manager of a bank, and talk to him/her about your intention, and how you would like to change/improvise on the target hotel.
Try to convince him/her of your idea, and if this seem workable the bank will advise you on the follow up.
However be ready wilth a business plan which should include factors such as marketing and services (since this is going to be a hotel) and also how you would like the funds to be used and in what way you can re-pay the bank.