Review of the SBA 504 hotel loan program
Structure: Two loans
Purpose: Acquisition, construction, and renovations
Rate: Fixed on the first loan and fixed for 20 years on the SBA loan
The rate on the first commercial loan is generally fixed for five turning adjustable for the 2nd five years or reseting. In our market, the rates are from 4.25% to 5.25%
The SBA debenture has a 20 year fixed rate that is issued by SBA every month and the rate table on the home page of our web site reflects the latest SBA rate
Maximum Loan: Generally total of 12 million but may go higher
Debt Service Coverage Ratio (DSCR): 1.25
Reserves: None
Initial Deposit: $8K to $10K for the first lender and $2500 for the CDC
Amortization and Maturity: 20 to 25 year first loan and 20 years 2nd loan
The 2nd loan is fully amortized which means it is amortized for 20 and matures in 20 years
The commercial loan can be amortized at 15, 20, 25, or 30 but cannot mature in less than 10 years.
Prepayment: First loan varies, but 2nd loan is 10 years
The commercial loan’s prepay is negotiable and generally 3 to 5 years. The 2nd loan has a 10 year declining prepay
SBA Guarantee fee: Varies with the loan amount
Points: 1.5 point on the first loan and Zero to 1 point on the interim loan
Costs on the first loan: $11K plus
- Appraisal: About $5K
- Phase I: About 2K
- Lender processing: About 4K
Personal guarantee: Full guarantee from any partner of 20% or more ownership
Assumption: The 7(a) loans are assumable
It is important to make certain that the first loan is assumable. However, the 2nd loan is assumable but the buyer need to be qualified to assume the loan
High Loan to Value
Assumption and transfer of ownership
FF&E and PIP costs are included
National coverage
No cash-outs
- Buy out other partners(This is allowed for SBA 7(a) loans)
- Inject equity in other investments
- Pull cash out and hold
- Payoff debts not incurred by the hotel
- Pay off personal debts that are not incurred by the hotel – HELOCs and personal credit cards if used specifically for the business with proof of the use of funds maybe refinanced by 7a loan
No refinance available through 504 loans
Citizenship
Job Requirements