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Review of the Conventional hotel loan program

Rate: 4.5% to 5.25%
The index used is generally PRIME. The determination of the rate is dependent on the hotel, the sponsors, and the geographic location of the hotel

Minimum Loan: 1 million
There is less appetite for our national lenders to fund smaller loans. However, for strong projects, we do consider loans below 1million

Loan to Value: Up to 65% to 80%
The determination of the Loan to Value is dependent mostly on the hotel and the geographic location. However, strong sponsorship is an additional factor considered by our lenders. It is important to note that some lenders go to 80% to 85% but of the real estate (value that is not including good will and FF&E)

Debt Service Coverage Ratio (DSCR): 1.25

Reserves: None
Generally conventional lenders such as banks do not require reserves

Initial Deposit: $8 to $10K
Upon signing of the Letter of Intent issued by our lenders, the borrowers will send in a good faith deposit to our lender (no fee is collected by Scientific Capital). The Lender uses this deposit to order the third party reports such as the appraisal and the Phase I report. Any balance left from this deposit will be applied to the closing costs. This deposit will generally appear on the closing statement

Amortization: 20 to 25 years

Prepayment: 3 to 5 Years
The prepayment is generally declining 3 or declining 5 although there are different variations depending on the source we use

Points: Generally up to 1 point

Costs: $11.5K to $20K on the average
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: 2K to 4K  (only if lender uses outside closing attorney)
  • Misc such as credit reports, tax services, UCC search, etc.: $500 to 1K

Benefits of the Conventional loans for hotels

Rates are lower and fixed
Rates are generally fixed for 3 to 5 years

Lower costs compared to other types of hotel loans

Less paperwork intensive and easier underwriting compared to SBA or CMBS program

Partial guarantee
As opposed to SBA or USDA loans, there is no mandate that all partners offer full guarantee. In fact, some lenders may offer guarantee proportional to the ownership percentage. The guarantee can be negotiated with the lender

Drawbacks of the Conventional loans

Generally the terms are five and upon the maturity of the loan, the borrower has to refinance. Some lenders do provide 10 year terms but the loan resets at the fifth year or becomes adjustable

Other than the banking or government regulations, there are no standard of requirements for these types of loans and so there is a wide range of requirements from one lender to another and from one market to another

Our other popular hotel loan programs

Press to go to go to our USDA hotel loan page Press to go to go to our SBA 7a hotel loan page Press to go to go to our SBA 504 hotel loan page
SBA (504)
Press to go to go to our bridge hotel loan page Press to go to go to our CMBS hotel loan page Press to go to go to our construction hotel loan page

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