Meeting
requirements to get a decent hotel loan from your local lender can be difficult but not impossible. Let's face it, what lender wants to put money up for a roach infested dump in downtown Detroit? You'd have to get a separate loan just for insurance.
Most lenders will only finance hotel properties that are "flagged". In other words, most banks, public and private lenders will only provide hotel loans to individuals who are starting a franchise under certain major hotel/motel chains such as Best Western, Hilton, Super 8 and other well-established hospitality brands; Sid's Sleep Shack need not apply. In addition to being a virtual nation-wide brand, particular establishment in question needs to show a profitable operating and occupancy history.
Even if you want to build a new hotel/motel from ground up, forget about starting your own brand; most lenders will only provide hotel loans to build same "flagged" hospitality companies as they will for purchase of an existing property. Besides having a well-known flag, getting a hotel loan for a new property is possible provided it is well located and can be provided with strong management.
Lenders reserve best hotel loan rates and terms for properties that are well cared for, attractive, and have pleasing amenities like pools, wireless internet, cable, and complimentary continental breakfast buffets.
Hotel loan terms will, of coarse, vary from lender to lender, but most banks and other investment capital institutions provide 5, 10, or 20 year loan terms for amounts up to $2,000,000. These loans can carry an interest rate ranging from 7% to 8% and typically carry a recourse clause, although some lenders are more flexible than others in this regard.
Just a brief note on recourse loans; this type of loan hold your personal assets liable in event you default on hotel loan-seriously bad news if your franchise doesn't turn out to be as successful as you originally thought. This is lender's way of protecting its assets by separating those who are serious about hotel business from those that just want to try something new. If you're not familiar with details of this loan, you should either educate yourself thoroughly first or look around for a non-recourse loan. The terms of a non-recourse loan simply hold hotel, or whatever else you spent loan funds on, liable in event you default.
