Need Business Loans for Motels? Here’s How to Get Approved Quickly!

According to Statista, U.S. hotels and motels comprise a $231.1 billion industry. It’s no wonder that so many entrepreneurs seek business loans for motels and hotels every day to capitalize on their piece of the pie.

Hotel and motel financing can be used to buy a hotel, motel, resort, or bed and breakfast, renovate or expand one that you already own, or even maintain one and keep it up to standards. You can also use hotel financing to buy into a hotel franchise.

With various property financing options available, choosing the right business loans for motels and hotels depends on your specific needs. This guide will help you understand your loan options, funding sources, and underwriting guidelines to help you navigate the process.

This article discusses:

• Where to get funding for your hotel or motel
• The types of hotel loans available
• The best hotel loan option
• Common hotel underwriting guidelines

Where Can I Get Business Loans for Motels and Hotels?

While small business owners have traditionally turned to banks and SBA loan companies for financing. The financing landscape today has changed. There are more ways of accessing business loans for motels and hotels than in previous years, and aspiring hoteliers will have to choose between several financing options.

The most notable include the Small Business Administration (SBA) and online hotel lending marketplaces, also known as alternative lenders.

It is a great deal more challenging to get funding for your business through a bank or the SBA than it is through alternative means. Both have more rigorous underwriting processes, lengthy wait times, and tougher criteria to meet for loan approval. 

While SBA financing for hotel purchasing or renovation purposes remains an excellent choice for long-term financing, online lenders provide faster funding solutions with fewer restrictions on eligibility.

Maybe that’s why many hotel owners prefer online financing platforms due to their easy application process, quick decisions, and fast funding solutions.

Types of Business Loans for Motels & Hotels

While running your hotel, you’ll need various types of small business loans for various purposes, such as property expansion, renovations or even operational costs. Depending on your needs, here are some of the popular business loans for motel and hotel owners that are available:

SBA loans

One of the best business loans for motels and hotels is SBA financing for hotel upgradation and renovation. The Small Business Administration has a few loan programs available for hotel entrepreneurs in need of funding. The most popular programs are its SBA 7 (a) and 504 loans.

SBA loan companies offer business loans for motels and hotels with favorable terms, including low down payments and extended repayment periods of up to 25 years for real estate purchases. This type of financing is a great option when you want easier loan terms for your hotel financing. These loans are obtained through lenders who have been pre-approved by the SBA to administer the loans.

The SBA offers loans up to $5 million and guarantees part of the loan, usually up to 85%, if a borrower defaults on the loan.

However,  the loan application process for an SBA loan is quite extensive and it could take months before you receive funding, if you’re approved at all, because the underwriting requirements are somewhat rigid.

The SBA usually requires its borrowers to have a minimum credit score of 650, in addition to other requirements, including proof of a minimum annual revenue.

You’ll also have to produce other financial documents, such as profit and loss statements. You will also likely have to provide collateral for your SBA loan if you borrow money for something other than real estate or equipment.

You can use an SBA loan towards the purchase of an existing hotel or motel, hotel construction, furnishings or equipment, or working capital needs. An SBA 504 loan can also be used to refinance similar hotel debt.

Repayment terms for an SBA loan are typically up to seven years for working capital loans, up to 10 years for equipment or furnishings, and up to 25 years for real estate purchases.

While SBA loans offer great terms, approval processes are lengthy, requiring strong financial records and high credit scores.

Short-Term Loans

For more urgent financing needs, short-term business loans for motels and hotels are a good bet. Short-term loans are great to cover a business emergency that you didn’t anticipate or help meet cash flow targets to pay for operational expenses. It can also be used to have enough working capital to pay bills or meet other expenses.

Short-term financing can also help you take advantage of an opportunity that requires you to move fast. It will give you a lump sum of cash that is paid back over a set timeframe. As the name implies, a short-term loan has a faster repayment period than many other types of hotel loans.

Because short-term loans are processed quickly, they also tend to have higher interest rates. But because you pay the money back quickly, the interest doesn’t accumulate as it does with longer-term financing solutions.

One of the great things about a short-term loan is its flexibility, which allows you to use your loan funds however you wish. But sometimes you need collateral if you’re going to use a short-term loan on whatever you want. 

Commercial Real Estate Loans

The hotel industry is one where you will likely need a commercial real estate (CRE) loan at some point in operating your business. While a CRE loan from the SBA would probably have the best terms, they’re hard to get, especially if your financials aren’t up to par or you lack perfect credit.

Thankfully, there are other funding options. Because the hospitality industry moves fast, most hotel owners prefer the type of fast funding they can get with a hotel bridge loan or an online lender.

Commercial real estate loans can have anywhere from a one-year term to a 25-year term, depending on where you get your loan.

Business Line of Credit

Business lines of credit work like credit cards or a credit line you might have taken out for your home. A lender grants you access to a revolving line of credit for a specific amount of money, and you can borrow against the line as needed.

With a line of credit, you only make payments when you’ve accessed some of the credit line and you only pay interest on the amount of credit you’ve used. If you borrow against the entire line of credit, once you pay it back, your credit limit goes back to the original set amount.

Based on the lender, you can get a line of credit anywhere from $ 250,000 to $5 million. It can help cover ongoing hotel business expenses, renovations, furniture, or other expenses. Many business loans for motels and hotels include lines of credit to cover operating expenses and small upgrades.

Typically, you’ll have six months to five years to pay off the credit extended to you. The requirements for a business line of credit vary from lender to lender.

Equipment Loans

Hotel equipment financing can be used for a broad scope of items that aren’t necessarily considered equipment by most people, including furnishings like dining room tables and chairs, kitchen appliances, and guest room furniture, as well as furniture for other areas in the hotel, cleaning equipment, and just about anything you can think of that makes your hotel functional. 

For hotel and motel owners seeking business loans for motels and hotels, equipment loans can help cover necessary purchases without depleting working capital. No extra collateral is required for an equipment loan because the items being financed serve as collateral. But the term of an equipment loan is limited to the life of the items being financed. 

Hotel Bridge Loans

Bridge loans are exactly what they imply: they are financing that allows you to get funding right away until you can get more affordable, harder-to-qualify-for funding down the road. As such, bridge loans are usually short-term loans with alternative lenders.

A bridge loan is often used when securing business loans for motel and hotel expansions or acquiring new property. Funding for your business can be unpredictable, and sometimes securing SBA financing for hotel and motel renovations takes longer than expected. In such cases, a bridge loan offers a short-term financing solution that ensures cash flow remains steady while you work on obtaining a permanent property financing loan.

What Is an Ideal Hotel Loan Option?

A hotel loan that is flexible, has a generous maximum loan amount, and a competitive interest rate is everything a borrower could hope for.

Each type of hotel loan caters to specific purposes, but term loans have more flexibility and allow you to use the funds as you see fit.

Many small business owners prefer getting their hotel loans through an online financing provider because they specialize in fast funding decisions and simple application processes.  

Ultimately, an ideal hotel financing option is the one that will get funds into your business bank account the fastest so you can move forward with your business plans.

Conclusion

Owning a hotel or a motel comes with enormous expenses, and as such, you will likely need financing more than once as you operate your business. This makes business loans for motel and hotel financing essential.

Hotel financing runs the gamut from funding hotel purchases, renovations, or expansions, construction loans, funds for equipment and furnishings, working capital, and more. Whether you need SBA loans, commercial real estate loans, or short-term funding, choosing the right lender is key to success. With a clear financial plan and the right funding solution, securing business loans for motels and hotels is easier than ever.

Frequently Asked Questions on Business Loans for Motels

What are the primary financing options available for motels?

Hotel and motel owners can explore various financing options, including business loans for motels and hotels, SBA loans, and traditional bank loans too. SBA offers programs like the SBA 7(a) and 504 loans, which are popular choices for business financing and operational needs but have longer and more stringent application process.

How can SBA financing benefit motel owners?

SBA financing for hotels and motels provides favorable terms, such as lower down payments and extended repayment periods. These loans can be used for purchasing property, renovations, or refinancing existing debts, making them a viable option for those seeking business loans for motels and hotels.

Can I use an SBA loan to renovate my existing motel?

SBA loans can be utilized for property improvements and renovations. This allows hotel and motel owners to upgrade facilities, enhance guest experiences, and remain competitive in the market.

How can I improve my chances of securing funding for my motel business?

To enhance your prospects of obtaining business loans for motels and hotels, focus on maintaining a strong credit profile, developing a comprehensive business plan, and ensuring consistent financial records. Exploring SBA financing for hotels and motels and collaborating with reputable lenders can also increase your likelihood of approval.

Can I obtain financing for a motel with less-than-perfect credit?

Obtaining business loans for motels with less-than-perfect credit is possible, though it may be more challenging. SBA loans often have more lenient credit requirements compared to traditional bank loans. Alternative lenders may also offer financing options tailored to those with imperfect credit. Improving your credit profile and presenting a solid business plan can enhance your eligibility for business financing.

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