Luxury hotels are among the first associations people make with Las Vegas, right along with casinos and entertainment. With an occupancy rate of 83.8% or higher, the local economy is entering a “sweet spot” of long-term stability, according to respected local economist Stephen Miller. Since no new large hotels are opening in the next few years, this is an excellent time to open a small hotel in Las Vegas, and a Small Business Administration (SBA) 504 loan can play an important part in achieving that goal.
Banks often emphasize franchising, especially for mid-market and luxury properties. Franchisors also have their own financial programs to complement bank financing. The majority of franchisors on the Enterprise 500 franchises list offer financing through third parties for some of the costs of opening a flagged (franchised) hotel and many of them offer in-house financing as well. Other advantages of franchising include training by the franchisor and ongoing consultations, in addition to advertising and other forms of promotion.
Financing a Small Hotel in Las Vegas
A business owner looking for financing to open a small hotel in Las Vegas is likely to find more options from local finance companies and banks than from national financial institutions, such as a Certified Development Company (CDC) like TMC Financing. Local finance companies can be quite competitive, offering low rates that meet borrowers’ needs.
The 504 loan program partners a CDC with a conventional lender to provide a loan in three parts:
- The first is a loan from a conventional lender—a bank or a credit union—for at least 50% of the total project amount. The amount and conditions of that loan are determined separately, and it becomes the first mortgage. TMC can help match the borrower with the perfect banking partner for this loan, if requested.
- The CDC facilitates a separate SBA loan of 35% of the total, up to $5 million, at a fixed, below-market rate. Manufacturing projects or projects eligible for the SBA’s Green Energy Program can receive up to $5.5 million. This is the second mortgage.
- Then the borrower contributes 15% to the loan as down payment. Hotels are classified as single-purpose properties by the SBA. The down payment for facilities that are not single purpose is 10%.
The 504 loan has a 10- or 20- or 25-year term. It is fully amortized (so there are no balloon payments).
A 504 loan can be used to:
- purchase land or buildings
- construct, upgrade or renovate buildings
- purchase equipment with a service life of ten years or more
- refinance conventional debt
This makes the 504 loan ideal for hotel construction or for the renovation and/or expansion of an existing hotel facility.
Hotels use a lot of energy, and there are usually ways to make the facility more energy efficient, especially in Las Vegas’s unparalleled access to sunlight. This can open up new financing opportunities for the borrower through the SBA Green Energy Program. To qualify for the program, a borrower can:
- Buy or construct a building that consumes 10% less energy than your current location
- Make upgrades to the building you own to consume 10% less energy, or buy the building you now lease and do so
- Buy or construct a building that produces 10% of the energy it consumes or that produces fuel to reduce fossil fuel consumption, or buy equipment to do so at your current location
The Green Energy Program encourages energy conservation and the use of renewable energy sources by increasing the SBA portion of the 504 loan from $5 million to $5.5 million and allowing the borrower to fund multiple projects. The limit on total 504 loan financing through the Green Energy Program is $16.5 million. There is still no limit on total project costs.
Ultimately, if you are planning on taking the plunge and reaping the benefits of opening a small hotel in Las Vegas, a 504 loan is flexible and cost-effective because it is designed to help small businesses grow. It can make financing for the opening a small hotel in Las Vegas more affordable and accessible to a small business owner than conventional and alternative financing options alone.
You can find out more about financing the opening of a small hotel from one of TMC Financing’s 504 loan experts. TMC is the national leader in hotel financing using the 504 loan and an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.
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