There are several types of hotel construction loans. These include hard money loans, SBA hotel construction loans, project bonds, and equipment financing. Read on to discover the best type for your project. This type of loan is often better suited for large projects, but you should check to see if you qualify. If you do, we recommend using a Hard Money loan. If not, you can also consider Project bonds. This article will discuss a few of the most common hotel construction loans available.
Hard money loans
Hotel construction loans made with hard money, also called private money, are an excellent way to expand your borrowing power. The risk of default is often passed along to several parties, including banks and CMBS lenders. Commercial mortgage-backed securities, or CMBS, are sold on the secondary market and booked on a bank’s balance sheet. Hard money hotel construction loans, however, may be more expensive. Because of this, you should be sure to research the lenders thoroughly and apply only for loans that offer the best rate and terms.
Bank loans are the easiest to obtain, but they have stricter requirements than hard money. A commercial finance company is better suited to tailor large construction loans to your specific hotel needs. However, if your project requires renovation, a hard-money hotel construction loan can help you make it happen. For example, you may want to replace plumbing and wiring or develop untouched land. The SBA will look at your personal credit history and decide whether you can get a loan through a bank.
SBA hotel construction loans
An SBA hotel construction loan can be the perfect way to finance your large-scale hotel development. While a loan from the SBA may have a higher interest rate, they offer low down payments. The maximum loan amount is $12 million, while a conventional loan cap is $5 million. A typical 100-room hotel requires $8 million and $10 million in construction loans. The loan amount is determined by the property value plus extra assets. Typically, an SBA hotel construction loan requires a 15% down payment. Depending on the type of loan, you can get up to 90% of the property’s value or different assets. However, the process is lengthy, and you should apply it early in the negotiation process.
An SBA 7(a) loan can provide up to 85% of the cost of construction or purchase. The borrower must have an excellent personal credit history and put up substantial personal collateral. However, the loan can also be used to refinance existing hotel loans or provide additional cash flow for the hotel. If your business plan calls for substantial funding, SBA hotel construction loans may be a good option.
Project bonds
While most hotels were financed through banks and lending institutions, project bonds are an excellent way to reduce the risk involved in hotel construction loans.
First, you should carefully evaluate the risks and rewards of each type of financing. In some cases, the bank may require significant participation from the project initiator. If the borrower cannot meet these costs, the bank may offer you an interest rate swap that replaces your fixed rates with floating ones. In addition, hedging can reduce the risk associated with currency fluctuations.
Leasing
Leasing hotel construction loans allows the owner to avoid paying the loan in full. Generally, hotel loans are in the 50-to-65 percent loan-to-cost range. The higher the loan amount, the more risk the lender will take, including step-down or burn-off in performance. Hotel development in central business districts will be complex until the business travel industry returns. Despite this risk, there are ways to minimize this. Banks take a more conservative approach to the industry and have stopped lending for new hotel development.
Factoring
Factoring may be the right choice when you need money for your hotel construction project. Non-recourse hotel construction loans help you maintain a clean personal balance sheet while freeing cash for other purposes. Moreover, they give you the option to add mezzanine debt. These loans are an excellent choice for a new hotel construction project by providing fast cash. However, factoring may not be suitable for all hotel owners.
The key to success in factoring is to understand the nuances of this type of financing. Unlike other hotel construction loans, PF deals only with hotel debt. Therefore, the amount you can borrow can vary significantly. In addition, you should know that no hotel buyer is looking for the same thing. In other words, no two hotel projects are the same. That is why the amount you receive will depend on your needs.
