Everything You Need to Know About Hotel Financing Rates
Commercial hotel financing rates will be one of your most important considerations when planning a purchase, expansion, or renovation.
Rates for hotel financing typically start around 5.95% with a minimum loan of $150,000. However, rates can be lower or higher depending on risk assessment, down payment, and the term of the loan. Hotel loan brokers can work with you to find the most competitive rate.
Learn the factors that influence hotel financing rates and see why hotel loan brokers are the best option when shopping the market.
How are Hotel Financing Rates Calculated?
Each loan is assessed differently by a lender, but there are some key factors that are always considered when determining an interest rate.
- The Economy: Canada’s economy has a direct influence on interest rates. Banks base their interest rates on data from the Bank of Canada and from within the industry. The current Canadian interest rate has been mostly stable at around 1.75%. The current prime interest rate posted by chartered banks is 3.95% and has been throughout all of 2019.The prime rate is a baseline that would be applied to the most creditworthy customers. In practice, commercial loans are rarely if ever offered at the prime rate. For a commercial mortgage or loan above five years, the rate would be closer to 6% today.
- Credit Worthiness: If you are borrowing as a business owner with full liability, the lender will look at your credit score. With a low debt ratio and a history of efficient debt management, you will be offered a competitive rate. If you are operating as a company with limited liability, then your business credit profile will be analyzed. As with a personal score, a history of strong credit management will reflect more favourably.Ultimately, lenders want to know how able and likely you are to repay a loan or mortgage. Their calculation directly influences hotel financing rates. Different lenders may be more or less willing to extend credit, which is why it’s so important to work with hotel loan brokers so that you can find the best deal.
- Loan Terms: If you apply for a short or mid-term loan the hotel financing rates offered will be more competitive. The longer the term, the higher the interest rate will be.
- Down Payment: A down payment will have a direct impact on the rate that is offered to you. If you have more capital to contribute to a down payment, you can expect a more competitive rate.
Do Lenders Look at Your Business Model?
Every lender in Canada will require a business plan and related documentation to assess the viability of your business and your ability to repay.
In the hotel industry, some key factors will be considered. Previous years of operation will be considered to determine total revenue, costs, and bottom-line earnings. There may be some element of speculation involved. If you take out a mortgage for hotel remodelling or a grand makeover, then projected earnings could be considered by the lender.
If you are applying for a mortgage to start a new business, then your plan will need to be highly detailed with market research, projections, and supporting data. If you don’t have a proven history in the hotel industry, then financing rates could be above average.
Hotel Loan Brokers Will Find the Most Competitive Packages
No matter what kind of hotel you operate or plan to operate, you will need professional representation when applying for a mortgage or loan. Hotel loan brokers work for you to find the best loan terms at the most competitive rates. They simplify the application process and will ensure that you have the right information and documentation in your application to ensure approval.
Work with a broker for a successful outcome when applying for hotel finance.
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