Financing Renovations - SBA loans continue to be the best option for hotel upgrades

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Each Spring, hotel owners across the nation look forward to the year ahead; an improving economy, summer travel and most of all, increasing demand for hotel stays.

These same owners also know, however, that to capture the coming business, their property will need to meet the increasing demands of consumers, the franchisor and most of all, themselves. That means keeping up with the constant need for upgrades and renovations, while at the same time freeing up as much cash flow as possible.  The problem is, there never seems to be enough money on hand when those upgrades are needed.

It is because of the unique requirement hotel properties have for constant renovation that owners need to become increasingly smarter about managing their financing needs over time. That’s easier said than done, though, since the financing market for hotels is always changing.


It seems like financing is easy to get when cash flow is strong enough not to need it, but impossible to get when needed the most. Maybe the best place to start is to take a look at how the Bank looks at hotel properties; the most common reasons for denial, and a one real solution to common problems.

Just as consumers believe that some hotels are more desirable than others, so do lenders.  When applying for a loan, the lender is going to look at your property the same way a customer would.  Is the property older or newer, flagged or unflagged, interior or exterior corridor, rural or close to population centers, in good condition or tired?  What do online reviews of the property have to say?  Will the renovations translate to increased property value?

A non-flagged, exterior corridor property in an out-of-the-way location is viewed much differently than a newer property, near a major airport, and with a recognizable flag.  Let’s face it, newer properties require less maintenance than older ones.  Exterior corridor hotels can’t attract the same flag or clientele as interior corridor properties, and often have larger capital expenditure requirements.  Rural properties are more likely to suffer with the addition of a new competitor.  All of these factors, and many others, are critical in understanding the viability of a project over time.  Many hotel lenders are intimidated by the presence of some of these challenges, but smart lenders, like smart investors, see through them and know where to find the diamonds-in-the-rough, while formulating a loan structure that works and results in long term success.

Northeast Bank provides acquisition financing, global debt restructures, and property improvement financing for a wide variety of hotel properties, including that unflagged, exterior corridor property off-the-beaten-path.  In some cases, a property may have sufficient cash flow and value to support a conventional loan for full refinance plus renovations.  Those loans are easy.  But what about the one’s where the value isn’t quite there, or where the borrower’s credit score is less than perfect?  Is there a solution for them?  Yes, a loan guaranteed by the US Small Business Administration.

The U.S. Small Business Administration, or SBA, is a government agency that exists specifically to help lenders understand the small business climate throughout the country, and ensure these small businesses receive the financing they need, when they need it.   These loans carry a guaranty from the government, helping lenders mitigate their risk, and are ideal for business owners who cannot secure conventional financing.

SBA real estate loans offer loan terms of up 25 years, significantly longer than most real estate loans available in the market. Longer loan terms mean lower monthly payments, and never having to worry about refinancing that property again.  In a constantly fluctuating market, this long-term approach to financing can help you focus on running your business, and increase free cash flow for future funding needs.

Northeast Bank has many examples of closed loans that were turned down by other lenders as a result of high loan to value, poor borrower credit, or property condition.  In one recent project in Texas, a buyer was looking to acquire and renovate an older, exterior corridor hotel. Many lenders passed immediately for those factors alone, but Northeast Bank looked a little deeper. The particular property had a great location and strong underlying real estate value, making it the right match for a 25 year SBA 7a loan along with an SBA Express line of credit for working capital.

While hotel renovations are one of the most common reasons for SBA loans, another benefit of this program is the ability to roll several initiatives into one. Perhaps you’re considering a refinance of several different loans, as well as a remodel and new furniture. With SBA-backed financing, there is no need to worry about multiple loans, multiple lenders or multiple payments.  You’re covered.

Northeast Bank recently closed a loan to a hotel owner who wanted to refinance his first and second mortgage, fund a property improvement plan required by his franchisor, and buy out his partner.  Many lenders declined this request, not only because it was close to 100% loan to value, but also due to a poor credit score as a result of a recent divorce.  Feeling hopeless after many months of hearing “No,” and facing an imminent loan maturity, Northeast Bank found a way to say “yes.”

We all know that a comfortable stay in a clean hotel is what every customer is looking for.  We also know that this requires constant renovations and, therefore, sound financial planning on the part of the owner. If you are one of the many hotel owners scratching their heads because they can’t find a lender who understands their business, consider an SBA loan from a seasoned lender with deep experience in the hotel industry.

Our Loan Expertise Across Industries

Our decades of experience includes loans across a wide range of industries — even in perceived higher risk categories like restaurants, independent hotels, car washes and gas stations.

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