Financing a hotel project can be challenging, especially in today’s economic climate. With the hospitality industry still recovering from recent downturns, many banks have become hesitant to lend for new construction. However, there are effective solutions available for projects under $25 million that can help you secure the necessary funding. In this blog, we’ll explore two of the best options: the SBA 504 Green loan and C-PACE financing in conjunction with senior loans.
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Understanding the SBA 504 Green Loan
The SBA 504 Green loan is designed specifically for environmentally friendly projects and offers significant advantages. One of the primary benefits is the ability to secure up to 85% leverage on single-use properties such as hotels. This means you can finance a substantial portion of your project without needing to invest a large amount of equity upfront.
Another significant advantage of the SBA 504 Green program is the higher borrowing limit. You can borrow up to $16.5 million, compared to the standard SBA limit of $5 million. This makes it an attractive option for those looking to expand their hospitality portfolio or finance multiple projects simultaneously.
Why Choose the SBA 504 Green Loan?
- Environmental Impact: By opting for the Green loan, you contribute positively to the environment, making your project more appealing to eco-conscious investors and guests.
- Future Expansion: The ability to borrow more means you have the flexibility to finance future expansions or new properties without starting from scratch.
- Favorable Terms: The SBA 504 Green loan offers below-market fixed interest rates and fully amortized payments over 25 years, which can significantly ease cash flow management.
Exploring C-PACE Financing
C-PACE, or Commercial Property Assessed Clean Energy financing, is another excellent option for funding hotel projects. This unique financing mechanism allows property owners to make energy-efficient upgrades and improvements without a significant upfront investment. C-PACE loans are repaid through a special assessment on the property tax bill, making them less of a burden on cash flow.
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How C-PACE Works
C-PACE financing can be used in conjunction with a traditional bank loan or senior debt. In this scenario, C-PACE typically fills the gap in the capital stack, allowing developers to leverage their funding more effectively. For example, if a bank provides 60-70% loan-to-cost financing, C-PACE can cover a portion of the remaining costs, reducing the equity required from the borrower.
- Flexible Terms: C-PACE loans can last for the useful life of the improvements made, often over 20 years, allowing for manageable repayment terms.
- Transferable Debt: If the property is sold, the C-PACE obligation stays with the property, which can be attractive to future buyers.
- High Leverage Potential: By combining C-PACE with other financing options, you can often achieve higher leverage and lower equity requirements.
Combining SBA 504 Green and C-PACE Financing
By utilizing both the SBA 504 Green loan and C-PACE financing, you can maximize your funding options for hotel projects. This combination allows you to secure significant financing while also promoting energy efficiency and sustainability. It’s a win-win situation for your project and the environment.
Case Study: Successful Hotel Financing
Imagine a scenario where a hotel developer is looking to construct a new property valued at $20 million. By leveraging the SBA 504 Green loan, the developer can secure up to $17 million (85% of the total project cost). If the developer also incorporates C-PACE financing, they can cover additional costs related to energy-efficient upgrades, potentially lowering their equity requirement to just 15-20%.
Conclusion
Financing a hotel project in 2021 may seem daunting, but with the right strategies in place, it can be a rewarding venture. The SBA 504 Green loan and C-PACE financing offer viable solutions for developers looking to fund their projects while promoting sustainability and efficiency. If you’re interested in learning more about how to leverage these financing options for your hotel project, feel free to reach out and schedule a consultation.
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Thanks for reading! We hope you found this information helpful as you navigate the hotel financing landscape. Remember, with the right approach, your hotel project can thrive in today’s market.