We at ValueXpress have a niche business in the SBA 504 program. We assist our clients in the purchase of generally mid-scale hotels such as Hampton Inn and Holiday Inn Express brands using the SBA 504 program.
Why use the SBA 504 program over CMBS, our bread and butter, for a mid-scale hotel purchase? The answer lies in leverage. The SBA 504 program allows for 85% loan to value (LTV), while CMBS conduit loans for hotels are generally limited to 70%. As long as buyers are comfortable with full recourse (versus non-recourse for CMBS conduit loans), buyers can purchase a hotel with much less equity than required for a CMBS conduit loan.
“Often buyers of hotels under $10 million are challenged to come up with the $3 million of equity required for a hotel purchase,” said Michael D. Sneden, Executive Vice President of ValueXpress. “The SBA 504 program, which would only require $1.5 million of equity for the same $10-million purchase, is a perfect fit for our clients.”