Motel loans can be difficult to fund for a couple of different reasons. For example, motels are often located in small towns or in rough area's which cannot support larger, flagged hotels. Further the exterior corridor of most motels also is a negative feature that adds additional risk for the lender. As far as loan options, owners should expect to see local conventional, SBA loans and a few CMBS options.
Conventional programs, meaning loans offered by traditional banks, for motels normally will not exceed 65% loan to value on purchases and rarely exceed 55% to 50% on refinances. Cash out refinances will be scrutinized more and banks will often want to see the proceeds used only to renovate/improve the subject property. Conventional loan programs for motels will normally be fixed for 5 year with a 20 year amortization schedule.
Owners should take a hard look at the SBA options as this is one the best ways to finance motels. First up, the programs have the highest level of financing available for motels at 85% for both refinances and purchases. Also, fixed rates range from 5 to 10 years with these programs. The 85% financing can be rolled out as 85% of the total project costs as well. For example, say you wanted to buy a motel at $1,000,000, but ht e property needed an additional $300,000 in renovations to bring the property up to par. Your loan would be at 85% of $1,300,000. Which means you would have less cash out of pocket.
CMBS lenders, meaning lenders that pool loans and sell them on the commercial mortgage secondary market (which are currently taking a beating due to the subprime mess), have offered some of the most creative options. Like 85% financing, 30 year fixed rates and stated income programs. Much is changing however in this sector, but it is still worthwhile for the motel owner to research what options may be out there for their motel loan.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He specializes in Commercial Real Estate Loans between $100,000 - $5,000,000. Offers unique loan programs such as Commercial Second Mortgages, Commercial 30 Year Fixed, 90% non SBA financing, Commercial Equity Loans. 248 885-8797 or daycare center loans or bed and breakfast loans or motel loans