SBA 7(a) Hotel Feasibility Study

The 7(a) side of SBA hotel finance

Hotel and motel owners drew 8,942 approvals from 7(a) over FY2017 to FY2026, $21.54 billion in all. Because 7(a) carries most of the SBA's hotel lending, its figures sit close to the class as a whole. The FY2017 through FY2024 hotel cohort carries a cancellation floor of 8.8%, and the ceiling is the same 8.8%, which tells us hardly any approvals from those years are still waiting to fund. Half of these hotel loans sit above $2.2 million; the middle half of the range spans $1.1 million to $3.6 million.

Brands, banks and the states that borrow

Franchised hotels took 64.7% of these loans. The lender table is led by GBank, the current holder of 839 loans worth $2.55 billion, ahead of Bank of Hope with 304 loans and $819.7 million, US Metro Bank with 303 and $871.4 million, Open Bank with 294 and $752.6 million; Celtic Bank Corporation follows at 284 hotel loans and $702.1 million. Texas accounts for 1,178 approvals, more than any other state, followed by California at 825, Georgia at 573, North Carolina at 444 and Ohio at 396. Annual volume peaked in FY2021 at 1,361 loans and $3.32 billion, dropped to 613 loans and $1.56 billion in FY2023, and reached 814 loans and $2.33 billion in FY2026.

What a 7(a) hotel study must settle

Funded 7(a) hotels have performed: the charge-off floor is 0.99% on 4,753 loans disbursed from FY2017 to FY2021, and 0.27% of the hotels were written off before their fifth year. For a lender the open question is which hotels fail, and this record cannot answer it by type, since limited-service hotels, full-service hotels and motels all share one code. The study has to supply that judgment for the property in front of it. It should establish demand from the performance of the hotels the property will compete with, the businesses and attractions that fill rooms around it, and any rooms under construction nearby. It should cost the improvement plan the brand will require on a conversion or purchase, or the full budget on a new build. Coverage needs testing at a higher floating rate and through any ramp-up. And because 7(a) can fund a going-concern purchase, the appraisal must divide value among land and building, furniture and equipment, and the business itself, with the study supporting the income the appraiser capitalizes.