SBA 504 Hotel Feasibility Study in South Dakota

Hotels and motels top South Dakota's 504 record, placing first of 39 classes inside the state, yet by loan count the state ranks only 19 in the country. That mismatch is the cell's distinctive finding: hospitality is the dominant use of 504 in a small economy. The cell totals 59 loans over FY2017 to FY2026 and $70.8 million; its median of $905,000 is 0.44x the nationwide 504 hotel median, with the central half running from $558,000 to $1.6 million.

Brands and the three companies

Franchise share is 55.9% of loans, so most funded properties carry a flag. Dakota Business Finance accounts for 36 loans worth $42.4 million, South Dakota Development Corporation for 11 worth $14.7 million, and Ally Dakota Development, Inc. for 9 worth $9.4 million. That is a very concentrated lender table, and the figures come from SBA's holder records, which are not a view of how any of them underwrites. For a borrower it means that nearly every hotel project in the state is reviewed by one of three desks.

Where the loans are

Minnehaha County has 20 loans and Pennington 15, which together dominate the cell. Hughes has 4, Codington and Meade 3, and Brookings, Lake, Lawrence and Potter 2 each. Yearly approvals ran 9 in FY2017, 6 in FY2018, 4 in FY2019 and FY2020, 7 in FY2021 and FY2022, 5 in FY2023, 6 in FY2024, 8 in FY2025 and 3 in FY2026, with the largest dollar year at $12.0 million in FY2025. A year can rise or fall on a single project.

Cancellation floor and the withheld rate

Cancellations after approval are at least 10.4% of the approvals made through FY2024; if undisbursed loans are counted as cancelled too, the share reaches 12.5%. The charged-off rate is withheld since the funded cohort has too few loans, so it is neither stated nor to be assumed to be zero.

One code for every kind of lodging

One code covers every hotel and motel, so a budget limited-service property lands in the same statistics as a full-service one. Any South Dakota lodging study must therefore state whether the property is a limited-service motel or something fuller. It should test seasonal demand, including tourism and business travel, against competing supply in the trade area, project average rate and occupancy through a ramp-up, and model brand fees and capital reserve requirements. Debt service coverage should be run on both pieces of a 504 structure, and the appraiser should be asked for land and building value apart from the operating business, since a hotel's income is earned through operations.