Hotel USDA Loan
Review of the USDA B&I hotel loan program
Hotels qualify if they do not include a golf course, casino, gambling facility, and racetrack. Ownership in the hotel by military or government employees need to be under 20%
Additionally, hotels need to be in the rural areas
Click to see if your hotel is in qualified USDA area
Loans of up to 5 million: 80% guarantee- Fee: 3 points on 80% of the loan
Loans of 5 to 7 million: 70% guarantee- Fee: 3 points on 70% of the loan
Loans from 7 to 10 million: 60% guarantee – Fee: 3 points on 60% of the loanExample: on a 4 million loan, the guarantee fee is $4MM x 80% x 3% = $96,000
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: 4K to 7K (only if lender uses outside closing attorney)
- Misc such as credit reports, tax services, UCC search, etc.: $500 to 1K
Benefits of the USDA B&I loans for hotels
Drawbacks of the USDA B&I loans
USDA loan proceeds can only be used for the borrowing business. The borrowers cannot cash-out from the hotel’s equity for cases such as:
- 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
However hotel may be refinanced to include PIPs (Property Improvement Plans), renovations, remodeling, acquisitions of FF&E, pay off and consolidate multiple loans including lease loans, credit cards, lines of credits, and others, buy out of other partners, transfer of ownerships, and other business related liabilities and expenses.