Financing a hotel — the three constraints that actually size the loan
Hotel debt is sized by three tests at once — loan-to-value, debt-service coverage, and debt yield — and whichever one binds tightest sets the actual proceeds, almost never the one buyers expect from the brochure. Ask for 65% leverage and the market is likelier to hand you something near 50%, with a 1.4x-or-better DSCR doing most of the constraining. At the small end, SBA 504/7(a) financing is a real path with its own, tighter debt-service math.
Three constraints run in parallel on a hotel loan: LTV (a ceiling on proceeds relative to appraised value), DSCR (net operating income divided by annual debt service, with 1.25–1.4x typical minimums), and debt yield (NOI divided by loan amount, a lender's downside floor independent of the appraisal). Whichever produces the smallest number wins — hotel deals are far more often DSCR-constrained than LTV-constrained, because hotel NOI is more volatile than an appraiser's cap rate assumes.
On a worked $14.72M property, the binding constraints size the loan at $7,514,587 against roughly 51% LTV — well under a headline 65% ask — carrying a 1.4x DSCR, an 11.77% debt yield, and $631,597 of annual debt service. Every 100 basis points of rate moves proceeds by a comparable order of magnitude, so rate-lock timing is not a footnote in a hotel financing.
At the small end — typically under roughly 100 keys or an owner-operator profile — SBA 504 and 7(a) programs are a genuine path, but they carry their own tighter coverage math: on the same case, an SBA-sized loan of $1,989,000 produces only a 0.5827x DSCR on its own, which is why SBA structures are usually paired with a conventional first rather than standing alone.