Are you considering purchasing a boutique motel but unsure how to finance the acquisition? One potential solution is the Small Business Administration (SBA) 7a Loan Program. In this program, you can do a projection-based loan, which is ideal for purchasing boutique motels that need renovation and have low occupancy rates.
What is a Boutique Motel?
A boutique motel is a small lodging establishment that offers personalized service, unique decor, and a specific theme or ambiance. These types of motels cater to travelers who prefer a more intimate, cozy, and local experience. Boutique motels can be profitable, but they require constant attention to detail and high-quality customer service to attract and retain guests.
Financing a Boutique Motel with SBA 7a Loan Program
The SBA 7a Loan Program provides financing to small businesses for a variety of purposes, including purchasing real estate, equipment, and working capital. This program offers loans up to $5 million and has a term of up to 25 years. The SBA 7a loan program can also be used for projection-based loans, which can be ideal for financing the acquisition of a boutique motel.
Projection-based loans are designed for businesses with limited cash flow but have a solid business plan. The lender will examine your business plan and projections to determine if the loan is feasible. In the case of a boutique motel acquisition, projections can include the expected renovation costs, occupancy rates, and average daily rate (ADR). The lender will use these projections to determine the amount of the loan and whether the loan is feasible.
Factors Considered by Lenders
When applying for an SBA 7a loan, the lender will consider several factors, including your business experience, credit score, and financial history. In the case of a boutique motel acquisition, lenders will also consider your experience in hospitality management. If you have experience running other lodging establishments, this can increase your chances of getting approved for the loan.
The lender will also want to know if any of the current motel employees will stay on after the acquisition. If so, the lender will consider their experience and qualifications to determine if they can help the new owners successfully manage the motel.
Prepayment Penalties
One significant advantage of the SBA 7a loan program is the relatively low prepayment penalties. The prepayment penalty is a fee charged if you pay off the loan early. The SBA 7a loan program only has a three-year prepayment penalty, making it an ideal option for value-add properties such as boutique motels.
Conclusion
In conclusion, the SBA 7a loan program can be an excellent option for financing the acquisition of a boutique motel. The projection-based loan option is ideal for motels that need renovation and have low occupancy rates. However, lenders will consider several factors, such as your business experience, hospitality management experience, and the experience of the current motel employees, when approving the loan. With low prepayment penalties, the SBA 7a loan program can be a valuable tool for value-add properties such as boutique motels.