SBA 504 HOTEL LOANS: DOWN BUT DEFINITELY NOT OUT. ‘NO MORE HOTELS’ RUMORS ARE EXAGGERATED!

The Rumor. Chances are you’ve heard what I have: “SBA has shut down lending to hotels.” That’s the buzz I hear when I get together with other 504 lenders.  But wait. There’s been nothing official from SBA. Still, it’s a common industry perception that no matter the quality of the credit, SBA just won’t approve a 504 loan for a hotel or motel.

So some CDCs have given up. Granted, hotels generally have a lot of affiliates and it takes time to analyze each one. Just to analyze the assumptions underlying projections, local market, ADR, ARR and RevPar can be a time-consuming exercise. You could spend 60+ hours underwriting a hotel. Been there! And while your underwriting department is working on one hotel, you have at least five non-hotel loans with excellent chances of getting approved sitting in your pipeline. Why waste time putting a hotel deal together if, as everyone says, you have zero chance of getting it approved?

The Facts. At JRB, our team has been consulting with clients who are getting their hotel/motel deals approved. One CDC we know has had six hotel deals approved in the last 12 months. So we decided to research the data to see if the word on the street is true. We found that approvals of 504 loans for hotels and motels may be down from the last few years, but they’re certainly not out. Check out the data.*

SBA Approvals of 504 Hotel & Motel Loans for Fiscal Years 2013-2018*
2013 2014 2015 2016 2017 2018 YTD
395 loans 302 loans 292 loans 340 loans 372 loans 272 loans
$652 million $529 million $505 million $682 million $761 million $614 million

This analysis supports what we see among our clients. While some CDCs aren’t doing new hotel/motel loans because of portfolio concentration, we have found other CDCs processing those deals – and getting them approved (overall, 99 CDC had at least 1 approved hotel deal in 2018).

The Upshot. It appears that SBA’s credit box for hotels/motels might have narrowed a bit.  And it seems that SBA may require more detail on these deals than previously. But to say that SBA has shut down hotel lending is just not true. Careful what you believe from the rumor mill!

Have a question about your hotel deal proposal? Contact JRB.

Richard Jeffrey
JRB Associate, CDC/504 Program

2018-11-09T18:28:57+00:00