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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 Conventional Loans for Financing 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 Conventional Loans for Financing Hotels

 

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 our Bridge hotel loan page Press to go to our CMBS hotel loan page Press to go to our Construction hotel loan page

Bridge

CMBS

Construction
Press to go to our SBA 7a hotel loan page Press to go to our SBA 504 hotel loan page Press to go to our USDA hotel loan page

SBA (7a)

SBA 504

USDA B&I