Typical Hotel SBA Financing Terms
Understanding loan terms is crucial before applying for an SBA hotel loan. Here are key factors to consider:
- Loan Amount: Ranges from $500,000 to $5 million for SBA 7(a) loans and up to $20 million for SBA 504 loans.
- Loan-to-Value (LTV) Ratio: SBA loans typically finance up to 85% of a hotel’s cost or current value.
- Down payment: The owner(s) put in 10% to 25% of the equity injection for the projection.
- Interest Rates: Generally, SBA loan interest rates range is 9% to 11%.
- Repayment Term: 25 years for real estate loans, 10 years for working capital and equipment.
- Debt Service Coverage Ratio (DSCR): Lenders often require a minimum of 1.15x, meaning your hotel’s net operating income (measured by EBITDA) must cover at least 115% of your annual loan payments. SBA loan payment calculator.
- Credit Score Requirement: A minimum personal credit score of 680 is recommended.
- Experience Requirement: At least three years of hotel management experience is preferred by most lenders.
- Collateral: The hotel property itself typically serves as collateral. All 20% or greater owners must personally guarantee the SBA loan.
For additional details, refer to the official SBA loan guidelines on SBA.gov.
Top Lenders for SBA Hotel Loans
| Rank | SBA Lender | SBA Lenders HQs | # of Loans | Avg Loan | Avg Rate |
|---|---|---|---|---|---|
| 1 | Gbank | Las Vegas, NV | 116 | $3,797,316 | 8.2% |
| 2 | Associated Bank | New York, NY | 84 | $2,617,214 | 8.5% |
| 3 | New York, NY | 84 | $2,617,214 | 8.5% | |
| 4 | Port 51 Lending | New York, NY | 84 | $2,617,214 | 8.5% |
| 5 | US Metro Bank | Garden Grove, CA | 73 | $2,643,815 | 8.3% |
| 6 | Bank of Hope | Los Angeles, CA | 38 | $3,222,276 | 8.0% |
| 7 | Shoreham Bank | Warwick, RI | 23 | $2,748,978 | 8.4% |
| 8 | Peoples Bank | Mendenhall, MS | 22 | $3,614,086 | 8.3% |
| 9 | Commonwealth Business Bank | Los Angeles, CA | 21 | $2,252,714 | 8.3% |
| 10 | U.S. Bank | Cincinnati, OH | 20 | $2,423,770 | 6.8% |
| 11 | Open Bank | Los Angeles, CA | 19 | $3,445,211 | 8.1% |
| 12 | Harvest Small Business Finance | Laguna Hills, CA | 18 | $2,052,861 | 9.4% |
| 13 | Enterprise Bank & Trust | Clayton, MO | 16 | $3,259,969 | 8.0% |
| 14 | Celtic Bank | Salt Lake City, UT | 15 | $1,724,913 | 9.7% |
| 15 | CenterStone SBA Lending | Los Angeles, CA | 13 | $2,023,308 | 8.6% |
| 16 | United Midwest Savings Bank | De Graff, OH | 12 | $2,370,500 | 8.1% |
| 17 | Readycap Lending, LLC | Berkeley Heights, NJ | 6 | $1,674,500 | 8.8% |
| 18 | Newtek Bank | Miami, FL | 5 | $225,000 | 11.3% |
| 19 | Noah Bank | Miami, FL | 5 | $225,000 | 11.3% |
| 20 | Southwestern National Bank | Houston, TX | 5 | $3,306,200 | 8.2% |
Recent hotel financing activity
| Industry | Year | Qtr | # of Loans | Avg Loan | Avg Rate* |
|---|---|---|---|---|---|
| Hotels (except Casino Hotels) and Motels | 2026 | 2 | 225 | $2,923,574 | 8.2% |
| Hotels (except Casino Hotels) and Motels | 2026 | 1 | 281 | $2,957,407 | 8.2% |
| Hotels (except Casino Hotels) and Motels | 2025 | 4 | 139 | $2,850,338 | 8.3% |
| Hotels (except Casino Hotels) and Motels | 2025 | 3 | 298 | $2,957,571 | 8.7% |
| Hotels (except Casino Hotels) and Motels | 2025 | 2 | 178 | $2,887,191 | 8.9% |
| Hotels (except Casino Hotels) and Motels | 2025 | 1 | 177 | $2,816,381 | 8.8% |
| Hotels (except Casino Hotels) and Motels | 2024 | 4 | 191 | $2,943,282 | 9.3% |
| Hotels (except Casino Hotels) and Motels | 2024 | 3 | 213 | $2,795,995 | 9.8% |
| Hotels (except Casino Hotels) and Motels | 2024 | 2 | 154 | $2,637,925 | 9.9% |
| Hotels (except Casino Hotels) and Motels | 2024 | 1 | 151 | $2,633,020 | 9.8% |
| Hotels (except Casino Hotels) and Motels | 2023 | 4 | 143 | $2,873,392 | 9.8% |
| Hotels (except Casino Hotels) and Motels | 2023 | 3 | 134 | $2,854,046 | 9.7% |
| Hotels (except Casino Hotels) and Motels | 2023 | 2 | 133 | $2,580,598 | 9.5% |
| Hotels (except Casino Hotels) and Motels | 2023 | 1 | 113 | $2,659,269 | 9.1% |
| Hotels (except Casino Hotels) and Motels | 2022 | 4 | 144 | $2,633,710 | 8.0% |
| Hotels (except Casino Hotels) and Motels | 2022 | 3 | 192 | $2,649,668 | 6.8% |
| Hotels (except Casino Hotels) and Motels | 2022 | 2 | 186 | $2,723,277 | 5.3% |
| Hotels (except Casino Hotels) and Motels | 2022 | 1 | 143 | $2,692,314 | 4.9% |
| Hotels (except Casino Hotels) and Motels | 2021 | 4 | 67 | $2,424,273 | 4.9% |
| Hotels (except Casino Hotels) and Motels | 2021 | 3 | 341 | $2,402,993 | 4.9% |
* Note that most SBA loans are variable-rate loans. The rates listed above is the initial interest rate at loan closing. Variable-rate SBA loans fluctuate by the fed funds rate set by the Federal Reserve.
Top Flags (Franchises) receiving SBA Hotel Loans
| Rank | Franchise | # of Loans | Avg Loan | Avg Rate |
|---|---|---|---|---|
| 1 | Quality Inn by Choice Hotels / | 39 | $3,058,867 | 9.4% |
| 2 | Super 8 by Wyndhan | 38 | $2,458,424 | 9.3% |
| 3 | Days Inn by Wyndham | 23 | $2,696,283 | 9.3% |
| 4 | Econo Lodge by Choice Hotels/E | 16 | $1,950,238 | 9.4% |
| 5 | Motel 6 | 16 | $2,219,125 | 9.3% |
| 6 | Holiday Inn Express (License A | 15 | $4,614,247 | 9.4% |
| 7 | Best Western – Membership Agre | 14 | $3,355,350 | 9.7% |
| 8 | Comfort Inn by Choice Hotels/C | 13 | $4,248,708 | 9.3% |
| 9 | Rodeway Inn by Choice Hotels/R | 9 | $3,135,667 | 9.7% |
| 10 | Baymont by Wyndham aka Baymont | 9 | $2,382,933 | 9.4% |
| 11 | La Quinta by Wyndham a.k.a. La | 8 | $3,580,375 | 9.8% |
| 12 | Country Inn & Suites by Radiss | 6 | $4,304,000 | 9.8% |
| 13 | Comfort Suites by Choice Hotel | 6 | $3,805,833 | 9.7% |
| 14 | Clarion Inn by Choice Hotels/C | 5 | $3,463,600 | 9.5% |
| 15 | AmericInn by Wyndham | 4 | $3,191,500 | 9.4% |
| 16 | Microtel Inn & Suites by Wyndh | 3 | $2,344,433 | 9.4% |
| 17 | SureStay | 2 | $2,445,250 | 9.9% |
| 18 | Candlewood Suites | 2 | $5,000,000 | 10.8% |
| 19 | Fairfield by Marriott/Fairfiel | 2 | $3,914,000 | 9.5% |
How to Improve Your Chances of Hotel SBA Loan Approval
To strengthen your SBA loan application, follow these steps:
- Prepare a Strong Business Plan: Outline projected revenues, market analysis, and risk mitigation strategies.
- Ensure Solid Financials: Maintain a DSCR above 1.25x and strong credit history.
- Demonstrate Industry Experience: Lenders favor applicants with 3+ years of hotel management experience.
- Showcase a Viable Location: A hotel in a high-traffic, tourism-friendly area is more likely to be approved.
- Purchase a strong flag: Most SBA lenders prefer franchise hotels as opposed to independents.
- Work with an SBA-Preferred Lender: These lenders have streamlined approval processes and extensive SBA loan experience.
SBA Hotel Loan FAQs
Can I use an SBA loan to acquire an hotel?
Absolutely, SBA loans are frequently used to acquire and/or renovate hotels. One of the best attributes of motel/hotel SBA loans is the loan term is 25 years.
What are the key criteria for obtaining a hotel SBA loan?
We cover SBA acquisition loans, cash flow, and SBA loan eligibility criteria and required documents in other articles. We encourage all potential SBA borrowers to review those articles. Specifically related to hotel business loans, here are the main reasons we see borrowers have their hotel loan denied:
- Lack of sufficient cash flow
- Entrepreneur does not have direct experience in the hotel industry
- Weak flag or independent – Most hotel lenders want a strong hotel franchise to minimize their risk. Hotel with perceived weak flags or independent hotels (non-flagged) may still obtain financing if the historical cash flows are strong (excluding the Covid years) or if the property is unique, such as a exclusive hotel that has been in business for decades in a popular tourist area. Hotels can be widely profitable businesses with high occupancy rates, so bankers will focus on historical occupancy rates.
Which hotel SBA loan program is better – 504 or 7a?
The vast majority of loan requests we see are for 7a loans, which typically are much faster to obtain and qualify for than 504 loans. We can introduce you to 504 lenders, but we recommend trying the more popular SBA 7a loan program first, especially if you are time-sensitive.
Determine How You’ll Use the Money
First, you should figure out how you plan to use the loan money. You can use SBA hotel loans for various things, so you can use them to start or grow a hotel. Here are a few potential uses for the money:
- Acquiring an existing hotel
- Building a new hotel
- Refinancing or renovating your current hotel
- Working capital for your hotel business
As you decide how you will use the money, you can figure out how much money you will need. Then, you can apply for a loan that will cover all of your costs.
If you aren’t sure how much you will need, such as for working capital, you can make a guess. You can always overestimate so that you can make sure to get enough money.
Compare Types of Loans
Next, you can compare a couple of different types of SBA loans for hotels. While you may find one loan that sounds perfect, you should keep your options open as you apply.
You never know if you will get a loan, so don’t limit yourself. Instead, consider more than one loan program so that you have a backup in case your first choice doesn’t work out.
SBA 504 Hotel Loans
One type of loan to consider is an SBA 504 loan. It combines a traditional bank loan with money from a non-profit community development corporation. These loans usually offer lower interest rates and longer terms than some bank loans for hotels.
In general, you can only use the money from these loans for heavy equipment or commercial real estate. You can get a loan for up to $5.5 million, and interest rates tend to be about 5% to 6%.
The repayment term can last anywhere from 10 to 20 years, and loan fees are about 3% of the loan value. You may be able to include these fees with your repayment.
SBA 7(a) Loans
SBA 7(a) loans are one of the most common programs out there, and hotels can use these loans. Like 504 loans, 7(a) loans have longer repayment terms and low interest rates.
You can use the loan for almost any expense, from real estate to working capital. SBA hotel loans can be up to $5 million, and some don’t have any fees aside from interest.
Interest rates are 2.75% plus a prime rate, which is about 5% to 10%. Loan terms can last anywhere from 10 to 25 years, but over 90% of all SBA hotel loans are for 25 years since real estate is the collateral.
Consider Loan Costs
When deciding what type of loan to get, you should consider how much it will cost. Aside from the loan amount, you have to calculate the interest rate that you will pay over the entire term.
But before you go for the lowest interest rate, compare it to the loan term. You may be okay with a shorter-term loan that has a higher interest rate because you’ll pay it off sooner.
You also need to think about any fees that might come with the loan. If you get a 504 loan, you also have to make sure that you will use the money for things the loan allows.
Verify You Qualify
Next, you should make sure you qualify for SBA hotel loans. Not meeting certain qualifications can be an easy way to have a bank reject your loan, so you should meet every qualification you can. Requirements may include:
- Good credit history
- Collateral
- Business plan
You may also want to make sure you have enough cash flow to show the lender you can handle the loan. That way, you can prove that you will make payments on the loan money.
Organize Your Documents
Another important step for getting SBA hotel loans is to organize all of your loan materials. You may need to show include documents with your application to show the bank that you are trustworthy.
Documents include:
- Your driver’s license
- Business tax returns
- Bank statements
- Voided business check
- Business plan
- Property purchase agreement or deed
- Profit and loss statements
When you find a lender, you should ask them if they require anything else. Then, you can put all of your documents together to make applying easier for you and your lender.
Getting SBA Hotel Loans
SBA hotel financing can help current and new hotel business owners fund their companies. You can use the money to purchase an existing hotel or construct a new one, but some loans have restrictions or extra costs.
Keep your loan needs and preferences in mind to help find the right loan program. Then, you can get the money you need to help build your business.
Apply for a Loan
Now, you’re ready to apply for some SBA hotel loans. You can start by applying to one loan program, but the program may not approve your application.
Apply for a few different SBA loans, and don’t be afraid to look at different bank loans for hotels. Then, you can increase your chances of one loan program accepting your application.
As you look for financing for hotels, consider the information you found earlier regarding loan amounts. If you need a large loan, you can narrow your search to programs that can handle that.
The small business hotel financing market has improved over the past year. But the resiliency of the hotel capital markets has been impressive given the devastating impacts of Covid and the overall decline in general in hotel SBA lending prior to Covid. Hotel loans closed the last few years:
Review Your Options
Another important step in how to get an SBA loan is to look at your options once lenders get back to you. If multiple SBA banks accept your application, you can compare the loan amounts, interest rates, and terms.
Then, you can make sure to choose a loan that meets your needs. If none of the loan programs is the right fit, you can apply for more SBA loans until you find a program that works.
You want to make sure that your loan can cover any expenses you have so that you can fund your next purchase or upgrade. That way, you do not need to apply for another loan right away.
Author: Darren King
Founder of SBALenders.com, with over 30 years of experience in finance and accounting. Has helped thousands of entrepreneurs navigate SBA lending and secure optimal capital structures for their businesses. Former managing partner of a venture capital firm, CEO of a cloud service provider, and CFO for multiple startups.