SBA Hotel Loan Feasibility Study

Choosing between 7(a) and 504 for a hotel

For a hotel borrower the program choice is less about size than about structure. In fiscal 2017 to 2026, 8,942 hotel deals cleared 7(a) approval, worth $21.54 billion, with a median of $2.2 million and a middle half running from $1.1 million to $3.6 million. Under 504 there were 2,885, for $6.68 billion, with a median of $2.0 million and a middle half from $1.0 million to $3.4 million. Those ranges overlap almost entirely, so a typical hotel purchase or build can fit either program, and the decision turns on rate structure, the equity each requires, and how much of the project cost is real estate rather than furniture, equipment and working capital.

Brands and the banks behind them

Franchised properties account for 64.7% of 7(a) hotel loans and 63.0% of 504 hotel loans, so a flag is the norm in both programs. The lenders shown are the current holders SBA reports, which can differ from the bank that originated a loan. Under 7(a), GBank holds 839 loans and $2.55 billion, Bank of Hope 304 and $819.7 million, US Metro Bank 303 and $871.4 million, Open Bank 294 and $752.6 million, and Celtic Bank Corporation 284 and $702.1 million. Among 504 lenders, The Mortgage Capital Development Corporation holds 211 loans and $572.5 million, Florida First Capital Finance Corporation, Inc. 142 and $370.4 million, Florida Business Development Corporation 137 and $381.5 million, Empire State Certified Development Corporation 129 and $282.2 million, and Granite State Economic Development Corporation 112 and $157.8 million.

We measure cancellation two ways. Counting only loans SBA marks cancelled, at least 8.8% of 7(a) hotel approvals from FY2017 to FY2024 fell away, and treating loans still undisbursed as cancelled gives a ceiling of the same 8.8%. For 504 the floor is 13.1% and the ceiling 19.2%, a wider band consistent with projects that take longer to fund. Charge-offs are low in both: of the 4,753 hotel loans that 7(a) disbursed in fiscal 2017 to 2021, 0.99% have been charged off to date and 0.27% within five years of approval; of the 1,085 504 loans, the figures are 0.55% and 0.09%.

Where each program lends, and what the study must carry

By state, 7(a) hotel lending is led by Texas with 1,178 loans, then California with 825 and Georgia with 573, while 504 is led by California with 355, then Florida with 225 and Texas with 149. A study prepared for either program has to support the lender's credit memo: a defined competitive set, occupancy and rate projected through stabilization, the franchise terms, and the property improvement plan when an existing hotel changes hands. For 504, the same numbers must satisfy both the bank and the certified development company, and the project must meet the program's job creation or public policy goal. Coverage of debt service should be shown in a stabilized year and through the ramp, and the appraisal must allocate value among real property, furniture and equipment, and business value, because that allocation sets how much of the loan rests on real estate.

SBA files a roadside motel and a resort hotel under one industry code, so nothing in these figures distinguishes service levels; a borrower should benchmark against its own brand tier.