Commercial lending for boutique hotel

[David Rutledge]

I was told to post this here but I do apologize if it belongs in another category. 

My wife and I have built up a portfolio of 14 strs over the past few years. We have some capital and are looking to possibly purchase a small hotel.

We have only ever bought residential sfr with conventional financing so commercial lending is totally new to us.

We are looking to put as little down as possible to stretch our capital as much as possible. Ideally 10% down. I’m thinking that an SBA loan would be our best bet but I am not sure.

Can anyone shed some light on what kind of down payment, terms and qualification requirements we would typically be looking at for an SBA or low down commercial loan?

Also as I understand it qualification for these loans are based on the property as opposed to the borrower. So is this just as simple as showing how much the property makes or do they also look at personal debt to income, credit score, reserves etc as well.

Any insight into the kind of options we may have for something like this and how qualification for a small hotel differs from residential conventional loans would be extremely helpful.

Thanks in advance.

[David Rutledge]

Quote from @Evan Polaski:

While you do have some options, from basic research, I am not sure you are going to find anything below 20% down on an SBA loan.

Anecdotally from talking with friends in the business and from a prior role where the company was trying to finance a corporate retreat hotel (admittedly in 2012), the financing of hotels in general seems very, very hard.  

https://www.commercialloandire....

While I can't say all the differences, based on what I have read and heard from friends, expect a lot of no's, expect a much higher interest rate and larger downpayment.  Expect significant prepayment penalties.

I am just curious if you have thought about your exit strategy if the hotel doesn't work out?  At least with most STRs, they are typical homes that will sell to anyone looking for a home in that area.  A hotel (barring any major redevelopment) will always be a hotel, with a very finite buyer pool, and even smaller if the reason you are selling is because it isn't generating a good return.

 Hi Evan,

Thanks very much for your detailed response. You make a lot of very points. 

At this point I am more so kicking the tires on other opportunities and considering my backyard in running STRs successfully getting into a hotel seems the obvious next step in this phase for me but as you mention there are many things for me to consider and learn in moving asset classes.