Hotel Refinancing Loans and the Advantages of the SBA 504

If you are a hotel owner facing high-interest mortgages, impending balloon payments, or simply have a desire to expand your business into something more sustainable and lucrative, refinancing is an option you should explore. There are a number of refinancing loans geared toward the hospitality industry, but the most substantial option could be the SBA 504 refinance loan.

The 504 offers low, fixed rates on fully amortized loans with low monthly payments on 10- or 20-year terms, as well as a cash-out option. This offers additional opportunities for hotel owners who wish to expand through new construction or purchases.

What an SBA 504 Loan Offers Hoteliers

Hotel owners can find a better financing rate and obtain funds for development through the 504 refinance loan. Similarly to the standard 504 loan, the 504 refinance loan is structured in partnership with a conventional bank. Borrowers can refinance up to 90% of the current appraised value of the property. If business expenses are being refinanced along with property, a maximum of 85% of the debt can be refinanced.

Borrowers have the option of “cashing out” a portion of the refinance loan:  receiving a sum in cash equivalent to up to 25% of the property’s value. This means if the 504 refinance loan exceeds the amount due on the initial loan(s), the cash difference can be used for business expenses accrued for the next 18 months.

“Taking out a 504 refinance loan meant lower, fixed monthly payments and fresh capital to reinvest in operations. It was a decision that had only advantages for us,” said John Della Pinna with the Sierra Hotel Group.  

Getting an SBA 504 Refinance Loan

Since eligibility requirements for the 504 refinance loan are the same as those for the standard 504, most businesses qualify for it. The cap on the portion of the debt refinanced through the Certified Development Company (CDC) remains $5 million or 40% of the total package and the partnering bank offers 50%. The refinancer provides 10% collateral for the loan (15% if expenses are being refinanced along with fixed assets). This amount is often covered by the property itself but other assets can be used if necessary.

There are only a few additional boxes to tick if you’re applying for a refinancing loan. For example, the debt to be refinanced has to be at least two years and payments on the debt cannot have been more than 30 days late in the last 12 months. Although government-backed loans are not eligible for the 504 refinance program, the good news is that government-backed loans that were refinanced into  conventional loans are eligible for 504 refinancing as well.

Finding a good CDC will help you take advantage of the opportunities a 504 refinance loan provides and guide you through the application process. TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider that has been assisting business owners for 35 years. Our experts can identify the best options for refinancing and customize a refinance proposal for individual properties. Contact a TMC loan expert to find out more about 504 refinancing and the options it will provide you.

Barbara Morrison

Barbara Morrison

Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison