Scientific Capital

Hotel Conventional Loan

Review of the Conventional Hotel Loan Program

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
There is less appetite for our national lenders to fund smaller loans. However, for strong projects, we do consider loans below 1million
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)
Generally conventional lenders such as banks do not require reserves (although there are exceptions)
The prepayment is generally declining 3 or declining 5 although there are different variations depending on the source we use
Scientific Capital generally tries to get discount on the lender point

The cost estimate includes the following items:

  • Lender processing fee: 0K to 4K
  • Appraisal and the review: 4K to 6K
  • Environmental Phase I report: 2K (some lenders use prior report)
  • Survey: 0 to 3K (Only if a copy is not available- some lenders do not need a survey or their endorsement requirements does not madate a survey by the title company)
  • Lender legal fees: 0K to 4K (Some lenders use 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 generally fixed for 3 to 5 years
Lower costs compared to other types of hotel loans
Less paperwork intensive and easier underwriting compared to SBA or CMBS program
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

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
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

SBA (7a)
SBA 504