SBA 7(a) Hotel Feasibility Study in Alabama

A franchise-dominated hotel book

Alabama hotels and motels financed through SBA 7(a) are overwhelmingly branded: franchise brands account for 76.5% of the 170 loans in the FY2017 to FY2026 files. Together the loans total $368.0 million gross. No single measure stands out for this cell, but the record is clean on outcomes. Of 100 loans funded in FY2017 to FY2021, 0.00% are charged off to date and 0.00% at five years, with the usual caution that open loans can still fail. The cancellation floor is 5.6%, or 6.3% counting loans still undisbursed. The median loan of $1.9 million is 0.89x the national median, and typical loans run from $1.1 million to $3.0 million. Alabama ranks 17 on count, and hotels are 3 of 39 inside the state. Limited-service and full-service properties share one code and cannot be separated.

Holders and where hotels are

GBank and PromiseOne Bank hold 13 loans each, worth $32.5 million and $16.2 million. Peoples Bank holds 12 for $36.4 million, with HomeTrust Bank on 10 for $15.7 million and US Metro Bank on 8 for $15.3 million. Five lenders share the top, with none dominant. These come from the holder SBA records for each loan, so they are no account of how a bank decides. Montgomery County has 30 loans, Mobile 25 and Jefferson 24, with Calhoun at 10, Houston, Russell and Shelby at 6 each, and Madison, Marion and Walker at 4 each. Approvals fell from 24 in FY2017 and 29 in FY2021 to 11 in FY2022, and stood at 13 in FY2026.

What an Alabama hotel study has to test

A hotel combines a building with an operating business, and the study tests both. Demand should be tested for each submarket. Competitors' occupancy, room rates and revenue per available room should be shown for the submarket, with any new supply. With so many loans carrying a brand, the franchise agreement, required property improvements and fees must be in the model, and the plan should explain what happens if the brand is replaced. Cost lines against a $1.9 million median should separate land, building, furniture and working capital. Test coverage at a downside occupancy, and let the appraisal rely on income as well as cost. Alabama's record is encouraging for lenders, but each borrower has to prove coverage independently.