Hotels & Motels are eligible for B & I Loan assistance due to their important role in economic development of rural communities

and because recreation & tourism are often a key rural business sector.

U  n  d  e  r  w  r  i  t  i  n  g      S  t  a  n  d  a  r  d  s:

Motels and Hotels must meet all the normal B & I Loan standards. In addition, because they are single-use, special purpose facilities which are particularly vulnerable to economic downturns caused by high gas prices, ect., added strength is generally required as outlined below:

 

   C o l l a t e r a l :

§ Up to 80% LTV (max) on Real Estate is the normal standard because they are special purpose facilities.

§ Up to 85% LTV (max) on Franchised Real Estate is acceptable because of the added benefits of the franchise.

§ 25% LTV on the Furnishings, Fixtures, & Equipment (FF&E). Motel FF&E is very depreciable and had limited salability if removed during liquidation. Loans      on motels & hotels should always be collateralized by both the real estate & FF&E, since the two are integrally related. A first lien position on both is important. If another lender holds a prior lien on either the real estate or the FF&E, additional discounting of the LTV is appropriate.

 

E q u i t y :

§ New or Not-Yet-Established Businesses - - 25% tangible balance sheet equity at guaranteed closing.

§ Established, Profitable, Business - - 10% tangible balance sheet equity at guaranteed closing.

 

A p p r a i s a l s :

§ Collateral Analysis should use the current, “as improved” fair market value of the property.

§ The value of the FF&E should be broken out separately from the value of the Real Estate

 

F e a s i b i l i t y    S t u d y : 

§ Feasibility Studies are required on all new motel & hotel projects. They must be separate & distinct from the real estate appraisal and prepared by independent consultants with an established expertise in  the hospitality industry.

§ The feasibility study should include detailed information of Supply, Demand Analysis, Occupancy & Average Rate Analysis, & Net Income Forecast.

 

L o a n    T e r m:

§ Loans for Real Estate purposes may extend up to 30 years.

§ Loans foe FF&E should not exceed the useful life of the furnishings - - 7 years.

§ A Blended term in a blended loan is permitted.

 

I n c o m e    S t a t e m e n t     A n a l y s i s :

Depreciation is a real expense, so adequate provisions should be made for regular repairs and upgrades.

 

L o a n     A g r e e m e n t :

If the motel/hotel is a franchise, the loan agreement should require the borrower to maintain the franchise flag. Loss or termination of the franchise without the lender’s consent would constitute a non-monetary default.

 

L o a n    C o n d i t i o n s :

If the motel/hotel is a franchise, a “comfort letter” should be obtained from the franchisor stating that the franchise will maintain its flag on the property during liquidation.