Hard Money Second Mortgages For Hotels

Hard money second mortgages for hotels can help hospitality property owners who have lower interest, long-term debt secured in the first position to quickly access equity for property improvements or a down payment on another investment. 

Hard money second mortgages are primarily asset-based loans, with private lenders such as individuals, family offices and mortgage funds offering financing based on the property's value rather than its cash flow or financial performance.  

Hard Money Second Mortgages in the Hospitality Industry

Securing financing can sometimes be challenging in the dynamic hospitality industry, which is susceptible to fluctuating market conditions such as seasonal demand — and unforeseen factors like the COVID-19 pandemic. Bank and institutional lenders sometimes view hotels as high risk, with fluctuating revenue streams and higher default potential during economic downturns.

Hard money second mortgages are a way to bridge the gap between hotel owners' financial needs and available funding options. With a focus on asset value over conventional lending criteria, hard money lenders provide a strong alternative for hotel owners to secure capital for new acquisitions, renovations or debt consolidation.

Second Mortgage Guidelines for Hospitality Properties

At First Capital Trust Deeds (FCTD), we originate hard money second mortgages on hotels and motels using the following general guidelines: 

• $200,000 minimum loan amount
• 65-70% Combined Loan-To-Value (CLTV)
• Single asset or cross-collateralized blanket loans
• Urban and suburban locations
• Verified exit strategy 
  (sell, refinance, or pay down through amortization)

Second Mortgage Terms and Pricing

All hard money loans have unique circumstances that borrowers, mortgage brokers and private lenders need to work through to get the loan to the finish line. Because every loan is different, FCTD doesn’t have uniform pricing. As hard money mortgage brokers, we match borrowers with one of our many private lenders, each with their own level of risk tolerance. 

That disclaimer aside, a hotel owner seeking a hard money second mortgage should expect pricing in the following range: 

• 10.00% to 15.00% interest rate
• 6-36 month term
• Prepayment penalty or guaranteed interest requirement
  (guaranteed interest is a fancy way of saying the lender requires a minimum of three payments on a 12-month term loan)
• Closing costs equaling 3-6% of the loan amount
  (smaller loans generally have higher percentage closing costs than higher balance loans)

Some loans may come in lower priced — while others have extenuating circumstances that drive the price higher. 

Requirements for Hotel Property Hard Money Second Mortgages

For a hard money second mortgage on a hotel property, borrowers are generally required to provide the following information: 

• 1st mortgage: note & loan agreement
  (need to confirm that junior liens are permitted)
• Loan application
• Background check
• Credit check
• STAR report 
• YTD financials — P&L and Balance Sheet
• Tax returns — previous year
• Bank statements 
• Appraisal (from previous loans)
• Valuation (current — can be a Broker Price Opinion [BPO])
• Use of funds
• Renovation budget and permits (if construction) 

Get Started With a Hard Money Second Mortgage for Your Hotel Property 

Hard money second mortgages for hotels are a useful financial tool for hotel owners to quickly access capital. The expedited approval process, limited requirements, and focus on asset value over financial metrics make these loans an attractive option. Hotel owners can tap into their existing property's equity to acquire new real estate, or improve and renovate existing assets.