A Team Approach to Financing Hotels

A Team Approach to Financing Hotels

The idea behind the Small Business Administration (SBA) 504 Loan is powerful and simple. HiFive works with local Certified Development Companies (CDCs) and Banks to get access to stable, long-term financing that creates jobs and improves the local economy. A CDC is a non-profit development company created to promote economic development. A CDC is a lender, certified by the U.S. Small Business Administration, that provides 504 SBA guaranteed loans to businesses like hotels.

Competitive Rates

  • Interest Rates for the CDC portion of the loan will always be competitive, and usually slightly below current market rates.
  • The rate for the 504 portion will be fixed for the term of the loan.
  • Banks like the 504 Program because it allows them to have first mortgage with only 50% exposure.

How the 504 Program Works

The CDC provides subordinated, fixed interest rate, long-term loans up to 30% of the Hotel costs or $5,000,000 (up to $5,500,000 in special cases). Terms are 10 and 20 years depending on the economic life of the asset being financed.

Here’s an example of a $10,000,000 hotel project:

Source                         Percent             Amount                 Security         
Owner Equity            20%                   $2,000,000
CDC/SBA                     30%                    $3,000,000            2nd Mortgage/Lien
Bank                              50%                   $5,000,000             1st Mortgage/Lien


Less Expensive
Business owners look at the fixed rate, low down payment, and long term benefits of the 504 loan. They find accounting for the cost of 504 over the entire term of the loan, it was actually less expensive than other forms of financing.

CDCs Make it Easy
Certified Development Companies (CDCs) were created to do the SBA paperwork for the borrower. Most business owners have found that the SBA paperwork is not much more than that required by banks – and CDCs make it easy because they are the experts in doing these types of loans.

It Frees Up Working capital
It’s a competitive market. Often, what is best for the business owner is offering them 80% financing with a long term that will benefit them by freeing up their working capital and lowering their debt service and down payment.

Monthly Payments are Lower with SBA 504
Most Business owners find it more valuable to take advantage of 504’s low monthly payment. They keep their cash for working capital to grow their business and as a cushion against inflation.

It is powerful and simple — competitive financing for Hotels is more easily secured with a Team approach. HiFive Development Services has successfully assisted many owners with hotel financing by utilizing the resources of local CDCs and banks.