5 Key Factors in Hotel Financing

Compared to other types of properties, it’s more challenging to finance lodging properties – hotels, motels, and other types of lodging properties. Applying for hotel loans is a major business decision. It’s very important that you understand the factors involved with this decision.

From management experience to lender experience, the following factors play a huge role in when financing a hotel deal.

1.    Flagship Name

Does your hotel have a recognizable flagship name? Flagged hotels typically get better rates, terms, and appraisal values compared to unflagged hotels that don’t have recognized hotelier names.

Unflagged hotels usually have a lower valuation because of the fact that tourists are more likely to choose a hotel with a more familiar name. While there are tourists who love boutique hotels, most of them prefer to stay in a flagged hotel where they know what to expect.

2.    Management Experience

Poor management is one of the major reasons why most businesses fail. For this reason, banks look closely at the management history of the person/s running the property. If it is your first time running a business, you will have to depend on other factors in order to get approved of a hotel loan financing. However, a good management history is definitely an advantage when applying for a hotel loan. And it also contributes to favorable interest rates.

3.    Getting the Right Lawyer

Since the law varies from every state, it’s best to work with experienced attorneys and find trusted legal help. While most lodging loans are relatively straightforward, lenders may include caveats to ensure they are protected in every situation. Getting advice from a lawyer who understands the sector ensures that you get the best deal possible.

4.    Lender Experience in Hotel Loans

When it comes to choosing a lender, don’t just rely on the best rates and terms. Make sure potential lenders have had experience with hotel loans before. You don’t want to compromise a lifelong business relationship with your clients by dealing with inexperienced lenders.

Ask potential lenders about the number of hotel loans they’ve successfully closed before. You may also want to ask about the type and size of their financing. If lenders aren’t able to give you at least a handful of deal they’ve closed in the past, you might want to move on to other potential lenders.

5.    Controllable Factors

Borrowers need to prove that they are able to pay off the loan. Lenders consider the following factors in determining the approval, interest rates, and the overall cost of the hotel loan; and the good news is you have a measure of influence over these factors.

  • Appraisal of property
  • Debt service coverage
  • Income history of the property
  • Length of loan
  • Loan amount
  • Loan-to-value ratio
  • Management experience
  • Occupancy rate
  • Personal income/credit history

If you want to know more about hotel loans, SMB Compass can help you with this matter. Our team of professionals ensures that businesses like yours only get the best deal possible. Don’t hesitate to give us a call at (646) 569-9496 or email us at info@smbcompass.com.