With the hoteliers facing difficulty in obtaining conventional loans at higher Loan-To-Value (LTV), it is logical to consider SBA 504 to reach 85% LTV. There are two SBA rules to keep in mind: 

 

1. Hoteliers who are expanding can go up to 85% loan-to-value with SBA 504 program as opposed to the standard 80%. When a hotelier who owns one or more hotels acquires a new one in the same region/market, it is considered expansion of the small business and qualifies for 85% LTV. The existing hotel will be required to be the co-borrower. In this project, our client has a hotel in Louisiana but is expanding to Amarillo and as such is eligible for 85% financing
2. SBA 504 loans are structured as two loans, a first-position loan by the lender and a second-position loan by the SBA. The SBA rules require the lender to be at least at 50% LTV and the SBA to be at most at 35% LTV. Hence, the lender may go over 50% LTV on the first-position loan as required by the project cost and the amount of the SBA allocation available to the borrower. The majority of lenders prefer to remain at 50% LTV on the first-position loan, a few push up to 55%, but very few go over 55% LTV. In this project, our client had partial availability of his $5 million allocation insufficient to reach 85% LTV. The lender then stepped up and increased the first-position loan to 60% to reach the desired 85% combined LTV

In this project, the lender offered a rate of 2.00% over Treasury fixed for 10 years with no prepayment penalty for the first-position loan.