Detailed Offering Memorandum (OM) example for a Motel 6 refinance from SBA 7(a) to SBA 504 financing

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

XYZ Hospitality Group is seeking $3,200,000 in refinancing to transition from an 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.

Loan Request Details

Loan Type: SBA 504 – 40% SBA-backed, 50% conventional lender

Purpose: Refinance existing debt to reduce monthly payments & stabilize long-term financing

Property Type: Limited-Service Hotel (Motel 6)

📍Location: Dallas, TX

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

📊Pre-Refinance (SBA 7a):

Interest Rate: 10.25% (Variable)

Monthly Payment: $43,650

Annual Debt Service: $523,800

NOI: $480,000

DSCR: 0.92x (High Risk)

✅Post-Refinance (SBA 504):

Interest Rate: 7.47% (Blended Fixed)

Monthly Payment: $26,000

Annual Debt Service: $312,000

NOI: $520,000

DSCR: 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

Recent hotel transactions in Dallas:

🏢Holiday Inn Express (120 Rooms): $6.7M Sale Price, 7.2% Cap Rate

🏢Red Roof Inn (105 Rooms): $5.9M Sale Price, 7.5% Cap Rate

🏢Motel 6 (110 Rooms): $6.1M Sale Price, 7.3% Cap Rate

📌 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

💰Revenue & Expenses (Annual):

✔Gross Revenue: Pre-Refinance: $3,700,000 | Post-Refinance: $3,800,000

✔Operating Expenses: Pre-Refinance: ($2,480,000) | Post-Refinance: ($2,480,000)

✔Net Operating Income (NOI): Pre-Refinance: $480,000 | Post-Refinance: $520,000

✔Debt Service: Pre-Refinance: ($523,800) | Post-Refinance: ($312,000)

✔Cash Flow After Debt: Pre-Refinance: ($43,800) (Negative) | Post-Refinance: $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?

✅ 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.

✅ Brand-Backed Stability: Franchise alignment with Motel 6 ensures predictable revenue streams.

✅ Experienced Borrower: Proven track record of managing & refinancing hospitality assets.

📩 Contact Montgomery Lending today!