Not every hotel is part of a mega-company with substantial resources. Many are small operations headed by an owner-operator. The Marriotts and Hiltons of the world probably aren’t scouring the Internet for financing options.
They rarely have trouble arranging financing and tend to receive preferential treatment from lenders in terms of rates and fees. But “unflagged” hotels of comparable size and smaller independent and boutique hotels typically lack the name recognition and affiliation to enjoy the same advantages.
Yet they still need to raise capital for any number of reasons. Hotel financing companies may hold the fate of small to medium-sized hotels, motels, resorts, and bed and breakfasts, in their hands. And franchise hotel operators face some unique challenges
Purpose of Hotel Financing
The starting point for searching for and comparing hotel financing companies is articulating the purpose for which money is needed. Most commonly this is:
- The purchase of an existing hotel
- Start-up financing for a new hotel
- Construction financing
- Remodeling or renovation
- Real estate acquisition
- Working capital
The purpose of a hotel loan can have a lot to do with the types of financing that are available and the terms of any loan you may qualify for.
Hotel Financing Options
Hoteliers have several options for obtaining the financing they need, such as:
- Commercial property (mortgage) loans
- Equipment loans
- Lines of credit
- Term loans
- Unsecured loans
- Property Improvement Plan (PIP) loans
- Commercial mortgage-backed securities (CMBS) loans
- Bridge loans
- Mezzanine loans
- Capital lease programs
It can be very difficult for hoteliers, especially those operating unflagged, smaller hotels or motels, to obtain conventional bank loans. Banks assume the full risk of such loans, so the credit standards for obtaining one are usually very high.
Some hoteliers in this category are able to secure a conventional loan from a local bank that handles their checking and other depository services. Many more turn to other potential lenders and types of financing, such as direct equity investments or peer-to-peer (P2P) lending.
That’s not to imply that larger, flagged hotels don’t also seek funding from those sources, because they do. Private equity real estate investment firms, in particular, do a great deal of business with well-known hotel brands.
There are plenty of companies advertising their services in the field of hotel financing. Some are strictly hotel financing companies, some also arrange financing for other players in the hospitality industry, and some are generalists in business financing or commercial real estate financing.
Our focus here is on companies that do most or all of their business in hotel financing or have a division or department devoted to hotel financing. Some of them are direct lenders. Others work with hoteliers to help them obtain funds from a network of lenders and investors.
Private Equity Real Estate Investment Firms
Hotel Capital, LLC
Hotel Capital, LLC is a direct lender to participants in the hospitality industry. Besides financing, it ensures continuity and ongoing relationship development with the client by servicing the loans it underwrites.
Hotel Capital provides capital for most of the major hotel brands and independent boutique hotels. The goal is to enable those clients to take advantage of opportunities to significantly increase profits, such as brand conversion.
Hotel Capital’s preferred equity/joint venture program is particularly popular with hoteliers looking for capital partners to support increasing their RevPaR through acquisitions.
KHP Capital Partners
KHP Capital Partners invests private equity money in full-service boutique and independent hotels in urban markets. Their portfolio contains leisure destinations throughout the United States and Canada.
This is not a hotel financing company for a cash-strapped owner looking for short-term financing. In fact, their primary interest is obtaining a controlling interest through whole ownership or joint ventures, with investments typically in the $10 to $40 million range.
Specialty Hotel Financing Companies
Access Point Financial, Inc.
Access Point Financial, Inc. describes itself as a direct mid-market lender focused on the hospitality industry. It provides financing in the form of customised loan and capital lease programs to franchisees of major hotel brands and independent boutique hotels in US and Canada.
In making credit decisions, Access Point goes beyond the typical lender’s reliance on historical financial performance and also considers project viability and projections of post-project financial performance.
Access Point offers bridge financing in the form of short-term mortgages (up to $25 million). The plans are available for acquisition, refinancing, discounted purchase options, or note purchases.
Another area of concentration is CapEx/FF&E financing for such purposes as renovation, execution of PIPs, brand conversions, or furniture, fixture, and equipment purchases for new construction.
FF&E loans usually are in amounts from $200,000 to $25 million, amortized over 3-10 years, depending on the useful life of the improvements. CapEx loans can cover up to 20% of a new construction project. In consequence, it helps lowering the amount of construction financing the hotelier needs to obtain. As well as making it easier to obtain financing from a construction lender.
Access Point also offers new construction loans for hotel franchisees. The first two years of the typical 3-5 year construction loan typically require interest payments only. At the end of the construction loan period, the hotelier can receive refinancing terms from a traditional lender.
Davis Hotel Capital
Davis Hotel Capital (DHC) offers hotel investment banking and mortgage brokerage services. Their major emphasis is on hotel and other hospitality properties. The firm operates internationally and raises debt and equity for a wide range of hotels. From large resorts to select service and full service suburban and urban hotels, to independent boutique hotels.
DHC gives hotel owners access to mortgages and capital they need from investors looking for opportunities in the hotel industry. It possesses relevant capital relationships with leading hotel industry lenders, including private investors.
DHC arranges debt financing for several purposes. To name some, there are cash-out financing, note purchases, bridge loans (e.g. for renovation and repositioning), acquisitions, construction loans, and more.
The firm also arranges equity investments for hotel and resort acquisitions and development. And if the opportunity is right, makes direct investments through its joint venture and preferred equity program.
Hotel Mortgage Companies
Select Commercial Funding, LLC
Select Commercial Funding’s hotel division takes pride in its understanding of the hotel industry. It specialises in providing financing and mortgage loans for hotels, which many conventional lenders don’t serve.
The firm provides funds for acquisitions, refinancing (including cash-outs), FF&E financing, and PIP loans to support hotel rebranding. Unlike many lenders, Select Commercial Funding makes loans on hotels that operate seasonally in vacation areas.
If you need a loan of at least $750,000 and financing of up to 90%, this may be the hotel financing company for you.
Hotel Financing Brokerage Companies
Scientific Capital arranges loans throughout the United States. It comprises of a wide range of financing purposes for franchise flagged hotels, independent motels, and boutique hotels.
Through its network of lenders, the company helps hoteliers obtain funds. These comprise of acquisitions and refinancing, cash outs, partner buyouts, family transfers, construction, renovations, expansions, and PIPs. Most of Scientific Capital’s hotel loan program offerings have a minimum loan amount of $1 million to $3 million.
Peer-to-Peer (P2P) Lenders
The relatively new peer-to-peer lending industry provides an additional alternative to hotel financing companies and other conventional lenders, especially when the need is for smaller amounts than the minimums that the other lenders profiled in this piece impose.
P2P lenders operate as online platforms, without the overhead of conventional lenders. More significant is the fact that P2P lenders are able to take into account factors that conventional lenders don’t consider in determining an applicant’s repayment ability — namely online sales and banking records and social media accounts, all of which speak to a hotelier’s past and current performance and popularity and future prospects.
P2P lending combines certain characteristics of crowdfunding and traditional investing. It brings together those who need funding with people who want to invest their money.
Typically, smaller amounts from multiple investors are aggregated and packaged as a business loan. One key advantage to hoteliers is that the decision-making and funding process is very quick compared to the process for obtaining a bank or SBA loan. It’s certainly an option worth looking into.
Bitbond is not a hotel financing company, but rather the first global P2P lending platform for small business loans. The maximum loan amount available to borrowers is based on personal debt capacity. It takes into account both current loans outstanding and any loan requests applied for but not yet approved.
All payment transactions are made through the bitcoin blockchain. There are no banks involved, and the internet-based service is available worldwide to anyone with internet access.
Unlike banks and hotel financing companies, Bitbond does not rely on data from conventional credit bureaus to evaluate an applicant’s repayment ability. Instead, Bitbond’s proprietary machine learning algorithm takes into account small business owners’ transactions.
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