By John King

There have been some positive developments with Small Business Administration (SBA) loan programs and hoteliers can now take advantage of this financing alternative.
There is an “A Minus” program for those who have returned to profitability after previous losses and another lending program that enables hoteliers to acquire or build multiple properties even if they are out of SBA eligibility. (Hint: it’s a “green” thing).

 

“A MINUS” HOTEL LOAN PROGRAM

The “A Minus” SBA 504 Loan is a new portfolio program for hoteliers who have survived the recession. The program is targeted at hoteliers who had previous losses, but turned a profit in 2010 and have continued to do well in 2011. Benefits of the SBA 504 Loan includes:

  • Low rates, fixed for 20 years (for second mortgage; rates change monthly, current at 5.63%)
  • No balloon payments
  • Only 10 percent equity requirement
  • 504 Loan can be combined with SBA “Green Loans” for more funding

If you are considering implementing sustainable initiatives such as energy efficiency, sustainable design, or “green retrofit” to your building project or expansion, the combination of the 504 and Green Loan program can increase the amount of your loan dramatically.

Basic SBA 504 hotel loan program details:

  • Loan to Value (LTV): Up to 90% combined LTV (50% first mortgage, 40% second).
  • Loan amount: $1-12 million
  • “Ideal” loan: Limited or full service, flagged hotel (no motels) in primary or secondary market with loan amount in the $2-5 million range.
  • STAR reports: Must show positive trends
  • Occupancy: No specific minimum occupancy, but transaction must cash flow
  • Rates: First mortgage: Three year fixed currently in mid 7’s (adjustable thereafter) with 25-year amortization. Five year fixed also available. Second mortgage is currently 5.63% fixed for 20 years.

*The SBA 504 Refinance program has not been a success since it is currently restrictive, but the “word on the street” is that it will be expanded in the next few months (possibly 30 days) to allow business debt consolidation, property improvements and renovations.

For those who cannot qualify for the 504 Loan program, you may want to consider an SBA 7a Loan that can be used for any legitimate business purpose and has a maximum loan amount of $5 million.

GET MORE ELIGIBILITY BY GOING GREEN

If your are considering on purchasing, constructing, remodeling, refinancing or renovating, adding sustainability solutions into your projects may qualify you for the SBA Green 504 Loan program.

The SBA Green 504 Loan isn’t really a new program, but there is a little known guideline that allows hoteliers (or others) to acquire or build multiple hotel properties regardless of whether they have any remaining SBA eligibility – as long as the new building is at least 10 percent more energy efficient than their current property or properties.

In other words, you can purchase multiple hotel even if you are out of SBA eligibility if you run an energy efficient hotel. This is a big deal in the current tight credit environment given that most lenders will not lend on a hotel without some type of government guarantee. Benefits of the SBA Green lending program include:

  • Removes the maximum $5 million SBA eligibility limit per borrower
  • Hoteliers can acquire, build or possibly refinance multiple facilities using the maximum amount of SBA financing of $5.5  million for each project (keep in mind, $5.5 million is the amount of the second mortgage guaranteed by SBA)
  • The 504 is long term fully amortized financing at below market rates.
  • You can use the 504 program to finance renewable and green energy equipment.

How to qualify for the SBA Green Loan

The easiest way to qualify is to acquire or construct a building that uses 10% less energy on a per square foot basis than your existing building. It is important to remember that the 10% reduction is in energy consumption not dollars saved on lower utility bills.

Qualifying examples assuming you currently own or lease:

  • You can qualify if you lease or own a building now and finance another building that is 10% more energy efficient than the building you are currently leasing.
  • You can qualify if you lease a building now and you decide to purchase it and make energy efficient improvements that cut your energy consumption by 10%. This could be as simple as conducting a thorough Energy Efficiency Analysis.
  • You can also qualify if you lease or own a building now and you build a new facility that is 10% more energy efficient.

Qualifying if you do not own or lease a building now:

Another way to qualify for the Green 504 is to acquire or build a new building that produces enough of it’s own renewable energy to cut it’s energy consumption based upon what it would have been without the improvements.

If you do not own a building currently and have no baseline for energy consumption then SBA requires that you produce enough of your own energy to cut your consumption by the required 10% since you do not have an existing building to benchmark against.

You can produce the energy multiple ways using any of the common sources of renewable energy (solar, wind, geothermal, etc.) and the costs of installation can be included in the loan amount.

About Author

John King is President of Green Commercial Capital. He specializes in educating clients about SBA loan options and connecting them with lenders who are actually lending. You can visit his company’s website at:  www.greencommercialcapital.com and blog www.sba504blog.com.

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