How do I get a loan to buy or expand a motel?

SBA 504 — the real estate piece

SBA 504 is the primary tool for motel property acquisition. The structure: a conventional first mortgage covers 50% of the project cost, an SBA CDC debenture covers 40% at a fixed rate (20–25 year term), and the borrower contributes 10% down — or 15% for businesses in operation less than 2 years, or 20% for special-use properties. Motels often qualify as special-use, pushing the down payment to 20%. The fixed CDC debenture rate provides long-term cost certainty in a sector sensitive to rate changes. 504 program details: https://www.sba.gov/funding-programs/loans/504-loans.

SBA 7(a) — working capital and soft costs

SBA 7(a) finances what 504 doesn't — FF&E (furniture, fixtures, equipment), renovation costs, initial working capital, and pre-opening expenses. Maximum $5 million; 10-year terms for working capital and equipment, 25 years for real-estate-secured 7(a) loans. Motel acquisitions often use a 504+7(a) stack: 504 buys the land and building, 7(a) funds the renovation and FF&E. Requires 680+ FICO, 2+ years operating history (or 3+ years in hospitality for startups), and a solid trailing-12-month financial showing. Program details: https://www.sba.gov/funding-programs/loans/7a-loans.

What lenders evaluate in motel underwriting

Hospitality underwriting is cash-flow-forward. Key metrics: ADR (average daily rate), occupancy rate (stabilized at 55%+ preferred), RevPAR (revenue per available room), and seasonality pattern. Brand-affiliated motels (franchise flags) generally underwrite more favorably than independents because flag standards imply consistent revenue floors and marketing support. Lenders will order a STAR report (Smith Travel Research) to compare the subject property to its competitive set. LTV for motel real estate typically ranges 65–75% from conventional lenders, higher with SBA guarantee.

Industry cyclicality and lender caution

Hospitality is a cyclical sector — motels were among the hardest-hit industries during the COVID-19 period, and lenders apply stress-test scenarios to occupancy projections. Lenders want to see 3 years of pre-pandemic OR strong post-2022 recovery trends, PIP (property improvement plan) compliance with the brand, and a clear management team track record. Independent motels need a particularly strong local market analysis.

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