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The Watsonville Motel 6 was purchased using an SBA 504 loan.
“The 7a loan has a variable rate, which is not ideal in a market where interest rates are rising,” said Bhanot. “Fixed monthly payments were important to me, which is why I started using the 504 Loan Program.”
Watsonville, California. (PRWEB)
January 10, 2023
Starting or expanding a hotel business is a big undertaking, and financing is a big part of it. Fortunately for US-based hoteliers, the Small Business Administration’s (SBA) 504 program is accessible and the most affordable way to finance the acquisition or construction of a hotel.
The SBA 504 program offers below market fixed interest rates to buy, build or refinance hotels. Equity injection is at least 15%.
TMC Financing, the nation’s #1 SBA 504 hotel lender, has provided 22 hotel owners with $70,000,000 in SBA funding to purchase, build, or refinance hospitality properties in fiscal 2022. Hotel industry veteran.
TMC Financing funded Bannot to purchase the 124-room Motel 6 at 125 Silver Leaf Drive in Watsonville, California. By taking advantage of the SBA 504 program, Bhanot only needed to cut his 15% of the total project cost of $11,900,000, including the purchase of buildings and furniture, fixtures and equipment.
“Funding through the SBA 504 program makes the most sense for us,” explains Bhanot. “It was the most convenient way to raise the funds we needed.”
SBA 504 funding beats alternatives
Motel 6 Watsonville isn’t Bannot’s first hotel acquisition. He previously purchased a Holiday Inn Express in Symi.
SBA 7a Loan Valley. SBA 7a loan also he is SBA backed and offers a low down payment. The main difference between 504 and 7a loans is that 504 loans have a fixed interest rate for the life of the loan, while 7a loans are variable and unpredictable. 7a loans often also require additional collateral.
“The 7a loan has a variable rate, which is not ideal in a market where interest rates are rising,” said Bhanot. “Fixed monthly payments were important to me, which is why I started using the 504 Loan Program.”
Bryce Fennell, who managed the SBA 504 loan on behalf of TMC Financing, said the project was ideal for the SBA 504 loan. “Traditional lenders can demand high down payments to finance hotels, often up to 40%. Working capital can be saved and reinvested in the business.”
Low down payment due to unique structure
The SBA 504 loan is the second mortgage backed by the SBA. The first mortgage is provided by a traditional lender and represents approximately 50% of the total project cost. The second mortgage of SBA 504, which generally accounts for 35% of the hotel’s total project cost, has a long-term fixed rate of up to 25 years and is fully amortized over the life of the loan. Monthly payments are fixed for the term of the loan.
“The whole process has been streamlined for efficiency,” says Bhanot. “My experience was smooth and I really enjoyed the whole ride. I was able to take my hands off quite a bit.
Bhanot concludes that he will likely knock on TMC Financing’s door again when additional funding is needed.
Franchise or independent boutique hotels may qualify for the SBA 504 program. There is no project cap and hoteliers can fund multiple projects. Hoteliers can ensure they meet the SBA 504 loan eligibility by contacting her SBA 504 loan experts at TMC Financing.
About TMC Financing
TMC Financing is a licensed and certified development company operating in Arizona, California, Nevada and Oregon. Founded in 1981, HE TMC Financing is a leading provider of SBA 504 commercial real estate loans in the country, financing more than $12 billion in projects. More than 6,000 businesses have benefited from this loan, creating an estimated 60,000 jobs.
Please contact us for more information.
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