Six Factors That Will Influence Your Ability To Acquire Hotel Financing

Posted on: 13 February 2020

There are many opportunities out there to acquire hotel financing. However, there are also many factors that influence your ability to acquire financing. 

Being aware of how various factors influence your ability to acquire financing can help you secure the type of loan you need for your hospitality ventures. The following are six factors that will influence your ability to acquire hotel financing. 

The demand drivers of the hotel in question

A hotel business is successful if there is adequate demand for the hotel's presence. As part of qualifying you for hotel financing, a lender will analyze factors including the location of your hotel and its proximity to amenities or establishments that are likely to attract clients.

Your chances of acquiring hotel financing go up with every demand driver that the hotel property you're interested in offers. 

The STAR report of your hotel property

If you're in the hotel business, you should know what a STAR report is. A STAR report is an analysis of the performance of a hotel and how it compares with its competitors. 

Keep in mind that the STAR report of your property will be looked at when you're looking for hotel financing. It's therefore important to keep your ADR, RevPAR, and ADO Index up as high as possible to make your STAR report attractive to lenders. 

The brand recognition of your hotel project

Financial institutions providing hotel financing services like to do business with borrowers who are working under widely recognized hospitality industry brands. If you are a smaller player in the hotel industry, it might prove to be a little more difficult to convince lenders to finance you. 

The borrowing history of your hotel/hospitality business

If you have any issues like default, foreclosure, or bankruptcy in your recent past, these issues could cause problems for you. However, they will not necessarily disqualify you from all financing possibilities. 

Because of the most recent recession in 2008, a lot of other prospective hotel financing borrowers out there are likely to have some negative marks on their financial histories. If you can outweigh any blemishes with otherwise healthy profit levels, you're still likely to find the hotel financing you seek. 

Your cost basis for your investment in the property in question

Your cost basis is the amount of money you yourself have invested in the property in question. This is a combination of how much you're paying as part of the purchase price and how much your development costs are.

The higher your cost basis is in comparison to how much you're borrowing, the better your chances of getting approved for hotel financing are. 

The type of financing you're looking for

There are many different types of hotel financing available these days. Just a few of the options include hotel bridge loans, SBA 7(a) and 504 loans, private loans, hard money loans, and 90% LTV loans for purchases.

Some loan types are easier to acquire than others, so the type of loan you choose will influence your ability to be approved.