OAKLAND, CA—The hospitality hospitality industry in California is showing positive signs of economic recovery, as indicated by SBA financing secured by hotel owners, according to CDC Small Business Finance, the nation’s leader in SBA-504 loans used to purchase commercial real estate.
Small Business Administration data reveals that SBA-504 financing approved for California hotels in FY14 has exceeded $163 million, more than triple the $56 million lent in FY13. The Bay Area, Los Angeles and San Diego rank in the top 10 nationally for hotel room sales volume, according to a report issued this month to the California Hotel and Lodging Association.
“Hotel owners have leveraged SBA-504 loan capital to acquire and improve properties,” said Kelly Ryan, SBA loan expert for CDC Small Business Finance in Northern California. “SBA financing enables hoteliers to obtain multiple SBA loans for multiple hotels with no project size limit.”
Ryan said hotel owners are able to seize SBA financing opportunities in part because of the “Green 504” loan program, which allows higher lending amounts for small business owners who want to buy or upgrade commercial/industrial buildings and make them more energy efficient. Buildings over $20 million can be financed using this unique program offered jointly by a bank and CDC Small Business Finance. Small business owners need only demonstrate a projected 10% reduction in energy costs by deploying one or more energy-saving improvements (e.g. insulation, lighting, heating/air conditioning).
One business taking advantage of the program was La Quinta Inn, a 145-unit hotel located in Silicon Valley. The property was purchased last year with a $4 million SBA-504 loan which included financing for major renovations.
“The demand for high-tech capabilities in hotels is rising and our renovations would have been very difficult without SBA 504 financing,” said La Quinta owner Rupesh Patel, who has built, owned and operated hotels for over 35 years. “La Quinta provides a top-quality experience and will continue to compete with higher-scale motels, thanks to the SBA-504 loan. It makes buying a commercial building achievable.”
SBA-504 loans offer 85% fixed-rate financing for hotel acquisition and construction. The current interest rate for a 20-year SBA-504 loan is 5.06%. Notable hotel brands using SBA-504 financing in California include Holiday Inn, Comfort Suites, Travelodge, Hampton Inn and Quality Inn.