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Review of the Conventional hotel loan program


Rate: 4.5% to 5.25%
The index used is generally PRIME. The determination of the rate is dependent on the hotel, the sponsors, and the geographic location of the hotel


Minimum Loan: 1 million
There is less appetite for our national lenders to fund smaller loans. However, for strong projects, we do consider loans below 1million


Loan to Value: Up to 65% to 80%
The determination of the Loan to Value is dependent mostly on the hotel and the geographic location. However, strong sponsorship is an additional factor considered by our lenders. It is important to note that some lenders go to 80% to 85% but of the real estate (value that is not including good will and FF&E)


Debt Service Coverage Ratio (DSCR): 1.25


Reserves: None
Generally conventional lenders such as banks do not require reserves


Initial Deposit: $8 to $10K
Upon signing of the Letter of Intent issued by our lenders, the borrowers will send in a good faith deposit to our lender (no fee is collected by Scientific Capital). The Lender uses this deposit to order the third party reports such as the appraisal and the Phase I report. Any balance left from this deposit will be applied to the closing costs. This deposit will generally appear on the closing statement


Amortization: 20 to 25 years


Prepayment: 3 to 5 Years
The prepayment is generally declining 3 or declining 5 although there are different variations depending on the source we use


Points: Generally up to 1 point


Costs: $11.5K to $20K on the average
The cost estimate includes the following items:
  • Lender processing fee: 1K to 4K
  • Appraisal and the review: 4K to 6K
  • Environmental Phase I report: 2K
  • Survey: 2K to 3K (Only if a copy is not available)
  • Lender legal fees: 2K to 4K  (only if lender uses outside closing attorney)
  • Misc such as credit reports, tax services, UCC search, etc.: $500 to 1K



Benefits of the Conventional loans for hotels



Rates are lower and fixed
Rates are generally fixed for 3 to 5 years


Costs
Lower costs compared to other types of hotel loans


Processing
Less paperwork intensive and easier underwriting compared to SBA or CMBS program


Partial guarantee
As opposed to SBA or USDA loans, there is no mandate that all partners offer full guarantee. In fact, some lenders may offer guarantee proportional to the ownership percentage. The guarantee can be negotiated with the lender





Drawbacks of the Conventional loans


Maturity
Generally the terms are five and upon the maturity of the loan, the borrower has to refinance. Some lenders do provide 10 year terms but the loan resets at the fifth year or becomes adjustable


Underwriting
Other than the banking or government regulations, there are no standard of requirements for these types of loans and so there is a wide range of requirements from one lender to another and from one market to another





Our other popular hotel loan programs


Press to go to go to our USDA hotel loan page Press to go to go to our SBA 7a hotel loan page Press to go to go to our SBA 504 hotel loan page
B&I USDA SBA (7a)
SBA (504)
Press to go to go to our bridge hotel loan page Press to go to go to our CMBS hotel loan page Press to go to go to our construction hotel loan page
Bridge
CMBS
Construction



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