News for the Hospitality Executive
Hoteliers – Lending Headaches?
Changes in SBA Lending Deserve Your Attention
By Dr. Diana Driscoll, August 2, 2010
Without a doubt, it has been a tough couple of years for virtually all hoteliers. Not only has RevPAR dropped precipitously, but even more importantly, NOI’s have decreased in over 91% of all U.S. hotels in 2009 (Trends in the Hospitality Industry Report, 2010).
With the suffering of the entire industry, however, comes attention, and Washington is taking notice. Some big changes are taking place in SBA lending and as a hotelier, you may find that the SBA is now a viable alternative for your business.
Once considered a paperwork nightmare for entrepreneurs and thus used only as a last resort, SBA lending is currently easier and more expansive than ever before. The program has increased its maximum loan amounts and guarantees, simplified its paperwork, expanded its lending for “green” building and retrofits and decreased or eliminated its fees.
Even more enticing is the new SBA Bill – HR5297 (the “Jobs 3 Bill”) – which has now passed the House and is ready for Senate consideration. With HR5297, you may be able to refinance your current loan, receive a larger loan than ever before and be a candidate for a loan if you are a larger company. Is this what hoteliers, indeed all small businesses need to pull out of our economic woes? Possibly. Let’s take a closer look.
Were you aware that some SBA loans can be used for working capital or refinancing existing debt? Others can be used for “any legitimate business purpose”, SBA 504 loans are available with as little as 10% down and are currently at a 5.21% fixed rate for 20 years (with no balloon) and there is now a “Green Retrofit Refinance” option? Let’s break these down and see if your hotel(s) qualify for these generous loans.
Ruling out the SBA loans that do not pertain to hospitality, you can consider four basic types of loans (even if it is a bit simplistic in the interest of the reader’s sanity):
SBA 7(a) loans are often considered the “darling” of loans for most hospitality needs. According the Small Business Administration, “the 7(a) loan can be used for “any legitimate business purpose”. This could include:
A huge benefit of 7(a) loans is that they are generally safe and profitable for banks and lenders because lenders can sell the loans for a profit on the secondary market and they currently offer a 90% “guarantee” from the SBA. This combination of profit potential and safety makes the loans more palatable for lenders – something skittish bankers are seeking.
SBA 504 Loans
A 504 loan provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization. It can make the difference between a project penciling out – or not. Some advantages of the 504 include:
SBA “Green Loans”
If you are considering building, purchasing, remodeling, refinancing or completing your hotel PIP’s, adding sustainability into your efforts may qualify you for significantly larger SBA loan amounts.
A business that implements, produces or manufactures any of the following types of renewable energy resulting in a 10% reduction in energy consumption can qualify for an SBA Green Loan. Examples include, but are not limited to the following:
The Jobs 3 Bill (HR 5297)
This bill, which has been passed by the House and is currently being considered by the Senate, would allow hoteliers with balloon notes to refinance using the SBA 504 program. Additionally, the maximum loan amount for an SBA 504 loan would increase substantially, the 90% guaranty for the SBA 7(a) loans would be extended over time, and larger businesses (up to a tangible net worth of $15 million instead of the current $8.5 million) could qualify for the loans.
As stated by John King in his blog www.sba504blog.com,
“This is the bill that stands to have the most immediate and long term impact on owners of small and mid-sized businesses because it is a potential “game-changer”.“ARC Loans” (America’s Recovery Capital)
ARC loans are one of the best kept secrets in the lending industry! The loan is designed to give viable small businesses suffering immediate financial hardship, a leg up to tie them over until profitability returns.
These loans (up to $35,000 per entity) can be used to pay down existing principal and interest payment on existing (and qualifying loans). Amazingly, there is a 12 month deferral plan (no payments need to be made for a year), and the loan can be paid back over five years at zero percent interest. ARC loans are 100% guaranteed by the SBA, and are generally provided with no fees to the borrower. The SBA will pay the lender a rate of prime plus 2% on behalf of the borrower.
ARC loans are currently available until the end of September, 2010, but may be extended at that point.
Complicated? Once underway, most people find the application procedures no more difficult than a conventional loan. Allow a qualified SBA expert to take care of you through this process. Because their fee is generally paid by the lending institution, you need not fear wasting money on application fees or retainers. To learn more, go to http://www.sba.gov and see if the new SBA loans deserve your attention.
© 2010 Dr. Diana Driscoll, Ridgeline Hospitality, LLC
About Dr. Diana Driscoll and Ridgeline Hospitality, LLC
Dr. Diana Driscoll, LEED AP B, D + C (the LEED AP specialty for Building, Design and Construction), has found her passion in “green” hotel development, and consulting with hoteliers concerning sustainability, social media and “recession management”. As CEO of Ridgeline Hospitality, LLC, and the founder of Hotel Rescue™, she heads up a team of experts to offer immediate assistance to hoteliers in this tough economic climate. Her message? “Go Green Gradually!”
Philanthropy plays a large role in her work, as does public speaking and writing, where you may find her addressing topics from social media to medical research and LEED developments.
Diana Driscoll, LEED AP, B, D & C
|Also See:||Hoteliers – Use Your Marketing Dollars Wisely; The Importance of Visual Imagery / Diana Driscoll / July 2010|
|Greening Your Hotel Meetings and Conferences /Diana Driscoll / June 2010|