Hotel bridge lenders in USA

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What is an example of a bridge financing?

Example of Hotel Bridge Financing in the USA:

Scenario: A hotel owner in Miami, Florida, wants to purchase a nearby property to expand their business. They have identified the perfect location and negotiated a favorable purchase price. However, their current hotel is still on the market, and the sale isn’t finalized yet.

Challenge: The owner needs funds to secure the new property before their existing hotel sells. They don’t want to miss out on this expansion opportunity.

Solution: The owner applies for a hotel bridge loan from a specialized lender in the USA. This short-term financing option provides them with the necessary funds to acquire the new property while they wait for the sale of their existing hotel to close.

Specifics of the Bridge Loan:

  • Loan amount: Based on the purchase price of the new property, minus any existing equity.
  • Interest rate: Typically higher than traditional loans due to the short-term nature and risk involved.
  • Loan term: Usually 12-24 months, aligning with the expected timeframe for selling the existing hotel.
  • Repayment: Primarily from the proceeds of the existing hotel sale, with potential balloon payments or ongoing installments.

Benefits:

  • Allows the owner to seize the expansion opportunity without waiting for the existing hotel sale.
  • Provides short-term liquidity to manage expenses and renovations on the new property.
  • Can be structured with flexible terms based on the borrower’s specific situation.

Risks:

  • Higher interest rates compared to traditional financing.
  • Pressure to sell the existing hotel quickly to repay the loan.
  • Potential for default if the existing hotel sale falls through or is delayed.

What is a bridge loan scheme?

What is a bridge loan scheme?

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A bridge loan scheme is a type of short-term financing solution designed to “bridge the gap” between two financial situations. They are typically used by individuals or businesses to cover immediate financial needs while waiting for longer-term financing to become available.

How do bridge loan schemes work?

Here’s the basic process:

  1. Borrower applies for a bridge loan: They specify the loan amount, desired term, and purpose of the loan.
  2. Lender assesses the application: They consider the borrower’s creditworthiness, collateral (if required), and ability to repay the loan.
  3. Approval and disbursement: If approved, the lender disburses the loan funds to the borrower.
  4. Repayment: The borrower makes regular payments (interest and principal) over the short loan term.
  5. Closing the gap: Once the long-term financing is secured (e.g., selling a property, receiving investment funds), the borrower uses those funds to repay the bridge loan in full.

Key characteristics of bridge loan schemes:

  • Short-term: Typically range from 6 months to 2 years.
  • Higher interest rates: Due to the shorter term and associated risk, they usually have higher interest rates compared to traditional long-term loans.
  • Collateralized: Often require collateral such as real estate or assets to secure the loan.
  • Flexible uses: Can be used for various purposes, such as:
    • Real estate: Purchasing a new property before selling an existing one.
    • Business: Covering operational expenses while waiting for funding or a loan approval.
    • Personal: Financing unexpected expenses or investments.

What are the specific loan products offered by different hotel bridge lenders?

Hotel bridge lenders in the USA offer a variety of loan products tailored to the specific needs of hotel owners and investors. Here’s a breakdown of some common options:

Loan Amounts:

  • Typically range from $2 million to $15 million, although some lenders cater to smaller or larger deals.

Loan-to-Value Ratio (LTV):

  • Up to 70% of the property’s appraised value is standard, but some lenders may go higher depending on specific circumstances.

Loan Terms:

  • Bridge loans are meant to be short-term solutions, typically with terms of 12-24 months.

Interest Rates:

  • Vary based on lender, risk factors, and market conditions, but generally fall in the range of WSJP Prime Rate + 1.5-2%.
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Fees:

  • Expect origination fees, closing costs, and other associated charges, typically ranging from 1-2% of the loan amount.

Amortization:

  • Options may include full interest-only payments or partially amortizing schedules with longer terms.

Property Types:

  • Lenders can specialize in specific hotel types like flagged chains, boutiques, motels, or resorts.

Here’s a glimpse into some specific loan products offered by different lenders:

  • Alpha Funding Corp: Offers standard bridge loans, construction bridge loans, and financing for renovations, refurbishments, conversions, and property improvement plans.
  • Access Point Financial: Provides tailored bridge loans with a focus on proforma-based underwriting, considering the potential future performance of the hotel.
  • Bloomfield Capital: Offers direct capital for various hotel transactions, including bridge loans for acquisitions, refinancing, and capital expenditures.
  • George Smith Partners: Arranges bridge loans for a range of scenarios, including refinancing with seller carry-back and property improvement plans.
  • Hotel Bridge Lender: Focuses on senior secured bridge loans for flagged and boutique hotels nationwide.

Remember: This is not an exhaustive list, and specific offerings may vary depending on the lender.

What are the fees associated with obtaining a bridge loan from different lenders?

Bridge loans offer speed and flexibility, but understanding the associated fees is crucial for making informed decisions. Here’s a breakdown of common fees charged by lenders:

1. Origination Fees:

  • Usually range from 1% to 3% of the loan amount. This fee compensates the lender for processing and underwriting the loan.

2. Closing Costs:

  • Similar to traditional mortgages, bridge loans incur closing costs like title insurance, appraisals, legal fees, recording fees, and credit reporting. These typically add up to 1-2% of the loan amount.

3. Third-Party Fees:

  • Appraisals, inspections, and environmental reports may involve additional fees charged by independent service providers.

4. Due Diligence Fee:

  • Some lenders charge a non-refundable fee to cover due diligence expenses incurred while assessing the property and borrower.

5. Exit Fees:

  • Prepayment penalties might apply if you pay off the loan early, typically ranging from 1% to 3% of the remaining loan balance.

6. Documentation Fee:

  • Some lenders charge a fee for preparing and processing loan documents.
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7. Interest Reserves:

  • Certain lenders require holding a reserve account to cover interest payments during the loan term.

Additional Considerations:

  • Negotiation: Origination fees and some other charges might be negotiable depending on the borrower’s creditworthiness, loan amount, and overall deal structure.
  • Lender-Specific Costs: Different lenders have varying fee structures and may disclose additional charges not listed here. Always carefully review the loan agreement for a complete picture.
  • Impact on Total Cost: While seemingly small percentages, fees can significantly impact the overall cost of your bridge loan. Factor them into your calculations when comparing loan options.

What is the application process like for different hotel bridge lenders?

While the core steps involved in applying for a bridge loan are similar across lenders, specific details and timelines can vary. Here’s a general overview of the application process for hotel bridge lenders in the USA:

1. Initial Inquiry:

  • Contact potential lenders to discuss your project, loan needs, and property details.
  • Get pre-qualified to understand your estimated borrowing capacity and interest rate range.

2. Prepare Application Package:

  • Gather required documents, typically including:
    • Business plan outlining the project, timeline, and financial projections
    • Personal and business financial statements
    • Tax returns
    • Hotel operating history and occupancy data
    • Property appraisal
    • Market analysis
    • Personal and business credit reports

3. Submit Application:

  • Provide the compiled documents to the chosen lender, often through an online portal or email.

4. Underwriting:

  • The lender thoroughly evaluates your application, verifying information and assessing your ability to repay the loan. This involves:
    • Analyzing financial statements and business plan
    • Verifying property valuation through appraisal
    • Assessing market conditions and potential risks
    • Checking creditworthiness

5. Loan Approval:

  • You’ll receive notification if your application is approved, along with loan terms, interest rates, and any conditions.

6. Closing:

  • Once terms are accepted, proceed with signing loan documents, paying closing costs, and fulfilling any final requirements.

7. Funding:

  • Upon successful closing, you’ll receive the loan funds to proceed with your project.

Key Differences Between Lenders:

  • Required Documents: Some lenders might request additional documents specific to their underwriting process.
  • Pre-Approval Speed: Pre-qualification turnaround time can vary from a few days to a week or more depending on the lender’s efficiency.
  • Underwriting Depth: The level of scrutiny during underwriting can differ based on the lender’s risk tolerance and loan amount.
  • Closing Timeline: Closing schedules can range from a few weeks to several months depending on due diligence complexities and lender capacity.

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