Hotels have traditionally been financed as real estate for lending purposes even though they are operating businesses. Whether a hotel or motel is “flagged” or “unflagged” is one major issue when it comes to financing lodging deals. Hotels that have recognizable names (like Marriot or Days Inn) are flagged. These flagged deals tend to get better rates and terms than unflagged hotels.
A hotel’s management is vital to its financing regardless of flagged status. Experience will be a major factor with the financing, no matter how great the borrower’s credit score or how large the hotel’s income. Hotels with net operating income (NOI) have cash flow to help secure financing more easily.
First, a hotel buyer should gather a list of all relevant businesses on the market. Then, it is essential to negotiate the transaction once the buyer finds the ideal hotel. It is crucial to resist the urge to get the transaction done as soon as possible. There is no need for you to be shy when it comes to asking for a lower price as businesses typically sell for 10-20% less than a seller’s initial asking price.
Sometimes deals fall through during the negotiation process, so buyers should avoid becoming too attached to a single hotel. Before approaching lenders, present a fully developed business plan of what is realistically required by most lenders to move forward and successfully finance the project.
The best rates and terms are not always the best options when it comes to selecting a lender. Make sure your lender has closed hospitality deals before; so they have a track record. Lenders will require income statements for the last three years with monthly and annual figures, a summary of all commercial leases, current personal and business financial statements, last three years’ business tax returns, and last two years’ personal tax returns.
● A lender or investor will order the appraisal, never order your own.
● Hire a lawyer who understands the sector.
● Have a CPA create and review tax returns, profit-and-loss statements, balance sheets, and cash-flow statements for the property for, at least, the past two years.
● Check your monthly payments with our Business Loan calculator.