Offering Memorandum (Example)
A Comprehensive Overview of Your Investment Opportunity
OFFERING MEMORANDUM
Motel 6 – SBA 7(a) to SBA 504 Refinance
Prepared by: Montgomery Lending, LLC
Date: 05/04/2025
Loan Request: $3,200,000
1️⃣ Executive Summary
🔍 Transaction Overview
- Borrower: XYZ Hospitality Group
- Purpose: Refinance existing SBA 7(a) loan (10.25% variable) to an SBA 504 loan (7.47% blended fixed) to lower debt service, improve DSCR, and support future property upgrades.
- Property Type: Limited-Service Hotel (Motel 6)
- Location: Dallas, TX
Loan Request
- Loan Type: SBA 504 – 40% SBA-backed, 50% conventional lender
- Purpose: Refinance existing debt to reduce monthly payments & stabilize long-term financing
- Loan Structure: Fixed rate, 25-year amortization
- Requested Amount: $3,200,000
- Exit Strategy: Maintain strong DSCR & NOI for future refinancing or potential sale
📊 Key Financing Metrics
| Metric | Pre-Refinance (SBA 7a) | Post-Refinance (SBA 504) |
|---|---|---|
| Interest Rate | 10.25% (Variable) | 7.47% (Blended Fixed) |
| Monthly Payment | $43,650 | $26,000 |
| Annual Debt Service | $523,800 | $312,000 |
| NOI | $480,000 | $520,000 |
| DSCR | 0.92x (High Risk) | 1.67x (Healthy) |
2️⃣ Property & Market Analysis
Property Overview
- 📌 Asset Type: Limited-Service Hotel (Motel 6)
- 📌 Total Rooms: 115
- 📌 Square Footage: 41,250 SF
- 📌 Year Built: 1999 (Renovated 2018)
- 📌 Occupancy Rate: 74% (Trailing 12 Months)
- 📌 ADR (Average Daily Rate): $88.50
- 📌 RevPAR (Revenue Per Available Room): $65.49
Market Trends
- Dallas hotel market occupancy: 68.9% (Q1 2025)
- Limited-service properties seeing 4.8% RevPAR growth YoY
- Franchise-backed hotels have higher lender approval rates due to brand stability
💎 Comparable Sales & Valuation
| Property | Rooms | Sale Price | Cap Rate |
|---|---|---|---|
| 🏢 Holiday Inn Express | 120 | $6.7M | 7.2% |
| 🏢 Red Roof Inn | 105 | $5.9M | 7.5% |
| 🏢 Motel 6 | 110 | $6.1M | 7.3% |
- 📌 Appraisal Estimate: $6,250,000 → Loan-to-Value (LTV) 51.2%, ensuring lender risk mitigation.
3️⃣ Financial Analysis & Loan Underwriting Metrics
Debt Service Coverage Ratio (DSCR) Improvement
- 📌 Pre-Refinance DSCR: 0.92x (High Risk) – NOI barely covers debt obligations.
- 📌 Post-Refinance DSCR: 1.67x (Healthy) – Stronger financial position improves loan eligibility.
Historical Financial Performance
- 📊 Trailing 12-Month NOI: $480,000
- 📊 Projected NOI After Refinancing: $520,000
Breakdown of Revenue & Expenses
| Revenue & Expense Category | Annual Pre-Refinance | Annual Post-Refinance |
|---|---|---|
| Gross Revenue | $3,700,000 | $3,800,000 |
| Operating Expenses | ($2,480,000) | ($2,480,000) |
| Net Operating Income (NOI) | $480,000 | $520,000 |
| Debt Service | ($523,800) | ($312,000) |
| Cash Flow After Debt | ($43,800) (Negative) | $208,000 (Positive) |
Loan-to-Value (LTV) & Debt Yield
- 📌 LTV: 51.2% – Strong collateral coverage for lender security.
- 📌 Debt Yield: 16.3% – High debt yield indicates strong lender protection.
4️⃣ Borrower Profile & Strengths
Borrower Overview
- ✔ XYZ Hospitality Group: Experienced hotel owner/operator with 15+ years of franchise-backed hospitality management.
Previous Successful Transactions:
- ✔ Purchased Holiday Inn Express (120 Rooms) in 2016, refinanced in 2021
- ✔ Refinanced Comfort Inn (90 Rooms) from SBA 7(a) to CMBS loan in 2019
Financial Strength
- ✔ Liquidity Available: $650,000 cash reserves
- ✔ Credit Score: 780 (Strong borrower creditworthiness)
- ✔ Personal Guarantee: Non-recourse structure
5️⃣ Loan Request & Deal Structure
Proposed Loan Terms:
- 📌 Loan Amount: $3,200,000
- 📌 Interest Rate: 7.47% Blended Fixed
- 📌 Term: 25 years (SBA portion), 20 years (Bank portion)
- 📌 Amortization: Fully amortizing
- 📌 Exit Strategy: Maintain strong DSCR & NOI for future refinancing or potential sale
6️⃣ Supporting Documents & Due Diligence
- 📂 Property Appraisal & Valuation Reports: $6,250,000 Market Valuation
- 📂 Environmental Report: Phase I Clearance
- 📂 Legal & Title Reports: Clean title, franchise-backed operations
- 📂 Franchise Agreement & Brand Performance Reports
- 📂 Historical & Projected Financials: 3-year income & expense statements
- 📂 Market Research: On Dallas Hospitality Performance
Why Lenders Should Fund This Deal: A Compelling Opportunity
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✅ Strong DSCR Improvement: From 0.92x to 1.67x, ensuring solid loan repayment capability.
-
✅ Low LTV (51.2%) & High Debt Yield (16.3%): Minimizing lender risk exposure.
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✅ Brand-Backed Stability: Franchise alignment with Motel 6 ensures predictable revenue streams.
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✅ Experienced Borrower: Proven track record of managing & refinancing hospitality assets.
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