Are you dreaming of owning your own hotel, but all you need is the financing? Or you’ve been running a hotel for years, but your property needs a serious face-lift? Whatever your needs, the right funding is important for successful hospitality businesses.
Confused by all the types of hotel loans out there? mCashAdvance™ has got you covered with our full guide to hotel loans. Discover the right loan for your hotel today!
What are Hotel Loans?
Hotel loans are a category of financial products aimed at helping businesses in the hospitality industry. These loans vary in size and structure, with different products designed for smaller hotel businesses versus large corporate hotel chains. Not sure what type of hotel loan is right for your business? You’ve come to the right place. Explore different types of hotel loans, discover the top hospitality lenders, and learn the industry’s terms so you can make an informed decision.
Common Types of Hotel Financing
Because there are so many hotel financing options, it can seem overwhelming at first to right one for your business. We’ve broken down the most common types of hotel funding so you can easily weigh the pros and cons of each.
Standard Hotel Loans
These are classic loans with a fixed loan term and interest rate. You make monthly payments to your lender to cover a portion of the loan principal and some of the accumulated interest. This is one of the most common types of hotel financing. Hotels use this type of financing to upgrade their facilities, hire more employees, or buy hospitality equipment.
This type of hotel financing blends debt and equity. This means lenders will give you both a loan you will repay with interest as well as money in exchange for shares in your hotel. A mezzanine lender will usually offer more capital than a bank, but at a higher interest rate. This is a good option for hotels with existing good cash flow looking to expand.
Hotel Bridging Loans
These loans help hotel owners bridge the cash gap between acquiring a new asset for the hotel (usually a new building or property) and getting more permanent financing (such as a mortgage) to invest further in it.
This type of loan is for hotel owners building their hotel from the ground up. The loan starts as a hotel construction loan and converts into a mortgage after construction is complete. This means borrowers do not need to apply for and qualify for two separate loans.
Lenders extend credit to hotel owners in exchange for preferred shares of their hotel. Preferred shareholders have a higher level of priority than common shareholders, should the hotel go bankrupt. This type of hotel loan is generally granted as a further cash boost in addition to a traditional loan.
SBA Hotel Financing
These government-backed loans guarantee a large percentage of the loan if the hotel owner defaults. This significantly decreases the risk, making interest rates much lower and more affordable. However, these loans can be difficult to qualify for if a hotel is experiencing financial hardships.
General Hotel Lending Guidelines
Hotel lending guidelines and eligibility criteria can vary greatly depending on your lender. Banks and lenders offering government-backed loans will typically require a higher business credit score and more documentation. In contrast, a private non-bank lender may not require as much paperwork. Most lenders will ask for some type of collateral as security, but this may depend on your hotel loan size. State requirements may also influence hotel loan underwriting guidelines, so be sure to check your state guidelines.
mCashAdvance™ Funding Details
The hotel loan terms will be determined by one of the underwriters at mCashAdvance™. The following details are representative figures.
- Borrow a minimum of $100,000 and a maximum of $1,000,000 for your hotel.
- Interest rates between 6.5% and 12% for the hotel industry.
- Repayment schedule between 36 months and 120 months for hotels.
- Get your hotel loan pre-approved in less than 2 minutes.
- Get your hotel funded in as little as 72 hours.
- No collateral required for businesses in the hotel industry.
- No origination fees.
- Most common hotel loan funded by mCashAdvance™ is a business acquisition loan.
- mCashAdvance™ funded over 120 hotels.
What Can You Use A Hotel Loan For?
You can use hotel loans to fund anything you need to grow your business:
- Financing a hotel purchase
- Refinancing your hotel
- Refinancing to get cash out of the property
- Building a new hotel
- Adding new hospitality services
- Financing new hospitality equipment
- Covering operational expenses
- Hiring more employees
Where Can I Get Hotel Financing?
Both banks and private lenders offer hotel motel loans. While banks offer longer repayment periods and lower interest rates, their requirements are rigid. Also, it can take weeks to receive approval and even longer to get money funded into your business account.
Private non-bank lenders usually offer faster funding with fewer documentation requirements. However, they usually offer shorter repayment periods with higher interest rates, which can be hard to afford.
How Do Hotel Loans Work?
- Fill out an application form and receive a lending decision.
- After approval, find the money in your business account.
- Start using your hotel loan to make your hotel shine.
- As guests flock to your hotel, make repayments to your lender.
How Much Can I Borrow With A Hotel Loan?
The amount you can borrow with a hotel loan will vary with different lenders. Lenders will assess the size of your hotel. The number of years of operation and your current cash flow. Smaller hotels can expect to borrow from $100,000 to a maximum of $1 million, while larger hotel chains can get financing up to $50 million.
What Are The Hotel Financing Rates?
Hotel loan interest rates will vary depending on your lender and your application, but you can generally expect to see rates from 6.5% to 12%. Banks tend to offer lower hotel financing rates with stricter lending criteria. Private lenders usually offer higher rates, but it can be easier to get approved.
What Types Of Properties Qualify For Business Loans For Hotels?
Hotel Business Loans are available for most kinds of hospitality properties, including:
- Extended Stay Hotels
- Business Hotels
- Serviced Apartments
Some lenders will also grant hotel business loans to
- Bed and Breakfasts
- RV Parks
However, other lenders will ask hotel owners to apply for a commercial loan instead of a hotel loan.
Find The Best Payment Processing For Hotel
Credit card processing companies for small business charge hotels transaction fees between 2% to 4.5%, and this eats into a hotel’s profit. Some hotels pass on these fees to their guests but this is a bad practice as it affects customer loyalty. Payment processing through mCashAdvance™ is different. There are no fees for our payment processing services. By taking advantage of our zero fee payment processing service, hotels can increase their profit margins. It’s easy to switch, once approved, you’ll have your new zero fee processing service up and running within 48 hours.
Hotel Loan FAQ’s
Banks usually offer traditional hotel loans over 20 to 30 years. However, the length of your loan period depends on the amount of money you wish to borrow and the purpose of your hotel loan application.
It depends on what type of loan you take out. If you have a recourse loan for your hotel, that means that you are personally responsible for repaying the loan even if the hotel goes bankrupt. If you have a non-recourse loan, that means you are not personally responsible for repaying the loan if the hotel goes bankrupt.
Hotels are generally a seasonal business, so they tend to not have a stable cash flow throughout the year. Traditionally rigid and inflexible lenders see this as a negative on a business loan application and may not approve hotels for hospitality financing. However, lenders who specialize in hotel loans understand the industry’s nature and may have a higher approval rate for hotel financing.
Yes! If you use your hotel business loan to finance new hospitality equipment, you can qualify for a tax deduction. Section 179 Tax Deduction benefit allows businesses to deduct the cost of business equipment and pay less tax. The Section 179 Tax Deduction is a government incentive for businesses to invest in themselves.
Hotel Loans: In Conclusion
At mCashAdvance™, we believe that financing should never stand in the way of pursuing your dreams. Whether you want to build your hotel from the ground up and require startup loans or you are re imagining your hospitality services, we hope our guide has given you the tools to navigate the world of hotel business loans confidently.
Does Your Business Need Funding Today?
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