Finding financing for hotel and motel properties can be a challenge for both brokers and their borrowers. The hospitality industry can be difficult to navigate, so some lenders may see these loans as too risky. However, there are non-conforming, small-balance commercial mortgage lenders who will fund deals for these properties.
Here are the questions brokers should ask a borrower before submitting a hotel mortgage scenario:
What’s the property like?
One of the most important factors for a lender reviewing a small-balance commercial mortgage request for a property, such as a hotel, motel, or apartment, is your borrower’s collateral. Before submitting the loan, talk to your borrower about their hotel or motel. How large is the property? What is its capacity? What is its occupancy rate? Where is it located? These are all questions your lender will need answered. We also encourage you to provide your lender with exterior and interior photos of the hotel/motel.
How is your borrower’s credit?
Another crucial component in any small-balance commercial mortgage lender’s decision to finance is your borrower’s credit report. While non-conforming lenders have less strict guidelines than banks and other traditional lenders, they will need a tri-merge report with score and tradelines to evaluate your borrower’s mortgage request. Discuss any past financial challenges with your borrower and write a letter of explanation if necessary.
What are their plans for the money?
Whether your borrower is planning on paying off a mortgage note or taxes, making some improvements to their hotel or motel, or purchasing another property, you need to tell your lender. Your borrower’s plans will factor into their decision and the plans need to make sense financially. Be sure to include your borrower’s plans in the loan submission summary.
Do they have the ability to make payments?
If your borrower can’t make their monthly payments, they won’t be able to obtain a small-balance commercial mortgage for their hotel or motel property. So, brokers need to make sure their borrower’s capacity to pay is proven. Provide your lender with all relevant documents that will give them a good idea of your borrower’s ability to make monthly payments, such as a personal financial statement, a profit and loss statement and income and expense reports.
All of the above information will be important to your lender when considering a commercial mortgage for a hotel or motel property. Be sure to have a thorough discussion with your borrower about the property itself, their credit score and history, how they plan to use the money and their capacity to pay. If you’re able to provide your lender with all of this information up front, you’ve got a better chance of closing the loan and closing it quickly.