Hotel Renovation Loans

Now that we’re out of the recession, hotels are feeling pressure from parent companies to stay competitive by undergoing renovations.

But with the economy still in a slump, where are owners getting the money?

In rare cases, companies themselves provide assistance. Choice Hotels International recently announced a $40 million property improvement incentive program for Comfort Inns and Comfort Suites in the US.

Funds are awarded through a forgivable promissory note and cover up to 50% of the cost of eligible items such as carpet, furniture, and mattresses. According to Mike Varner, senior director of brand strategy at Choice, around 900 hotels have expressed interest so far.

Those unable to take advantage of company renovation incentives have to rely on financing from lenders.

Although the lending climate remains cautious, Shawn Turner, finance editor at HotelNewsNow.com, believes “things are moving in the right direction.”

Turner pointed to Wells Fargo as one of the most active lenders, citing their strong hospitality lending program. He also suggested that hotels look beyond banks for their financing.

“Life insurance companies are often more willing to look at construction financing and riskier loans,” said Turner.

Some hotels may be eligible for the Small Business Administration (SBA) loan program, which help to mitigate lender risk.

The SBA 7(a) has a limit of $5 million and covers everything from working capital to fixed assets. Funding comes from a lender, with the SBA acting as a guarantor for up to 85% of the loan.

For owners looking to finance fixed assets only, the SBA 504 has the advantage of distributing the loan among three partners: the borrower (10%), the lender (50%), and a government-backed Certified Development Corporation (40% up to a maximum of $5 million).

Those willing to invest in energy-saving projects may be eligible for an extra $0.5 million. Charlie Patel is the operating manager of a Comfort Suites that is being redone into a Four Points by Sheraton in Newark, DE. When his conventional SBA 504 loan fell through in 2011, Patel turned to the 504 “green loan”.

 “We ended up redesigning many areas—laundry, elevators, backup generators—to meet and exceed guidelines,” he said.

Although the green projects may cost slightly more upfront, Patel believes that it makes sense on an operational level.

“Switching to LED fixtures has a payback in less than three years. That’s cashflow to help you cut back on costs.”

If you are looking into renovating your hotel get a free quote at www.hospitalitydesigns.com.