Financing the purchase of a Hotel with SBA 7(a) in Indiana
The borrower's goal in the financing of
this hotel was to
increase the Loan to Value (LTV) to 85% and to have as low of interest
rate as possible.
SBA's requirement on Loan to Value for special/single use properties
such as hotels is 15% for expansion and 20% for start up. This means
that if a hotelier has other affiliates (hotels) and is buying another
hotel, he can have a loan to value as high as 85%, otherwise the
maximum LTV is 80%.
In case of a start up where a borrower does not have other hotel
affiliates or for a ground up project, SBA 7a and 504 are structured
differently. As an example, for a 504 loan, 20% equity is absolutely
required but in case of 7a loans, borrower can leverage seller carry
also pledge additional collateral to reach higher than 80% LTV.
In case of expansion, 504 does not require additional collateral but 7a
loans do require that if additional collateral with sufficient equity
is available that it will be pledged by the borrower to further
securitize the loan. The lien may be removed upon request by the
borrower when the 7a loan is seasoned in few years and an appraisal
proves sufficient LTV of 75% or lower.
In both cases, the seller carry can be applied to equity. However, the
total loan stack has to debt service at 1.25 which means the net profit
of the hotel has to be 125% of the annual payments. For 7a loans, the
carryback may need to be on Standby but 504 loans do not require
Our Other Projects With This Client
you very much for your help to getting financing for Red Roof Inn North
Indianapolis. You have been extremely knowledgeable, professional, and
instrumental in our deal. I admire your depth of knowledge in
hospitality financial business. I have learned a lot from you ever
since I meet you and you financed my Motel 6 of Evansville. I am
looking forward to work with you for my next project without any
I will recommends you to all my hotelier friends. Again you have been
extremely helpful, and hardworking gentlemen, and scholar. Thank you
very very much for your timely effort and support.
| Purchase of Motel 6 of Evansville, IN
|| Refinance of Clarion of Indianapolis, IN
Vipul Shah visiting Ramin at the Scientific Capital booth at the AAHOA 2016 in Nashville
Scientific Capital Group, Inc. All rights reserved