- 29 Dec
How SBA 504 Loan is helping hotels to expand their operations?
SBA 504 LOAN – HOTEL CONSTRUCTION OR AQUISITION
Hotel Construction or Aquisition. When it comes to hoteling industry, expanding operations on a really fast pace is not an easy task to do. There are a lot of factors which makes expansion in this industry a bit difficult. However, capital is the biggest requirement and it becomes even more difficult if the investor is considering traditional bank for hotel construction loan or acquisition. The purpose of this article is to understand hotel construction or acquisition financing through SBA 504 loan and surely the benefits of SBA 504 loan for hotel construction or acquisition over other SBA loan programs and traditional financing through banks and financial institutions. Though SBA 504 loan program is not only designed for hotel owners but multiple other businesses which may require construction, real estate, heavy machinery and other capital expenses which are briefly explained in this article in following paragraphs. Also, you will have a reasonable idea of how SBA 504 loan is helping hotels to expand their operations in the modern world.
What is SBA 504 loan?
SBA 504 loan combines a loan from a nonprofit CDC with a loan from a bank to create a long-term, low-interest rate loan for up to $20,000,000 for the purchase of the owner-occupied commercial real estate and heavy equipment. The CDC / SBA 504 loan program is designed to get affordable, long-term loans to small businesses looking to buy or build facilities to operate out of as well as outfit those facilities with heavy equipment with long lifespans. The program actually pairs two lenders together to fund these projects: The remaining 10% of project costs come from the borrower, typically in the form of a cash down payment. As mentioned above, the purpose of this article is to understand SBA 504 loan for hoteling industry for financing and new constructions or acquisitions. However, SBA 504 loan could be used for following purposes as per SBA guidelines:
A. Buy commercial real estate (land and buildings)
B. Commercial Real Estate Improvements (like upgrading roads, utilities, etc.)
C. Construction of new facilities
D. Modernization of existing facilities
E. Conversion of existing facilities
F. Long lifespan equipment and equipment
After reading this much, I believe you must be interested in knowing about the requirements to get an SBA 504 loan for your hotel construction or acquisition financing project. Your business must need following to fulfill criteria for getting SBA 504 loan:
A. Credit score above 660
B. Down payment of 10% of the project cost
C. Meet the job creation or public policy goals (explained below)
D. Have a tangible net worth less than $15 million and an average net income less than $5 million. After taxes for the preceding two years
E. Not be engaged in speculation or investment in rental real estate
F. Not have funds available from other sources
G. Have the ability to repay the loan on time from the projected operating cash flow of the business
Why SBA 504 loan is the best option over traditional financing through a bank or other options?
In SBA 504 loan the upper limit to borrow funds is almost three times the SBA 7a Loan. Most of the clients from hoteling industry prefer SBA 504 loan over SBA 7a Loan just because they like having more limit to borrow funds. As big construction cost and luxurious atmosphere of hotels of modern world do require a lot of money to spend to compete.
With no doubt, one of the biggest advantages of SBA 504 loan over traditional SBA 7a loan is the interest rate. Yes, an interest rate is usually quite lower for SBA 504 loan than SBA 7a loan.
Traditionally bank loans have their own charm as the amount you can borrow has no defined upper limit. You can borrow as much as you like by proving them that the proof that you are able to repay what you are borrowing. With interest and any other charges as per the terms and conditions. Usually, the banks have following requirements for loans which make them unsuitable. Options for start-ups or growing entities specifically for real estate related loans like
Hotel construction or acquisition financing:
- They may require collateral in form of your property, which makes it quite difficult for new and small businesses.
- The interest rates are much higher than SBA loans.
- Down payment is also higher in bank loans as compared to SBA.
- They will surely require a higher credit rating which makes many applicants not eligible for applying.
These factors make SBA 504 loan the best option over traditional financing through a bank or other options. And in this way, SBA 504 loan is helping hotel owners to expand their business mostly by getting Hotel construction or acquisition financing through loan program which is surely the most important thing while considering expanding hoteling business by building more branches and expanding the current ones to maximize sales and profit. It has seen that hoteling industry was a major part of borrowing for construction or acquisition through SBA 504 loan.
Thank you very much for taking time and reading this article. I really appreciated that! If you have any questions or suggestions, please feel free to contact us. We would be more than happy to know your thoughts regarding SBA 504 loan for hotel construction or acquisition financing and answer your questions or clear any confusion. Also, feel free to contact us if you are in need of funds for expanding your hoteling business by construction or acquisition and feel that SBA 504 loan suits you best