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Twice the Ceiling, Half the Door: The SBA Hotel Loan in 2026

By Nathan Snyder  ·   ·  Updated  ·  9 min read

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Washington just doubled how much a hotel buyer can borrow with an SBA guarantee, and in the same year told a big share of the industry's buyers they can't borrow at all.

The Program That Runs on Hotels

If you own a limited-service hotel, there is a good chance an SBA loan is somewhere in its history. Hotels and motels were the No. 1 industry in the SBA 7(a) program by dollar volume in fiscal 2025, with about $1.8 billion across 699 loans, ahead of full-service restaurants at $1.7 billion, according to GoSBALoans' ranking of SBA FOIA data. That works out to roughly $2.6 million per hotel loan, against a few hundred thousand dollars for the typical restaurant or dental office.

Over the longer run, hotels have been one of the program's best credits. An analysis of SBA loan-level data published in September by MMCG Invest counts 25,447 7(a) loans to hotels and motels from 1995 to 2024, about $44.2 billion in original principal. Hotel loans from the 2010 to 2019 vintages charged off at 2.10 percent, compared with about 6.4 percent for all 7(a) loans of those years, roughly a third of the program's loss rate.

That is the background for 2026: an asset class lenders like, inside a program that just changed four ways at once.

Change One: The Ceiling Doubled

On May 18, the SBA announced it would let borrowers combine 7(a) and 504 loans for up to $10 million in SBA-backed financing, double the old $5 million cumulative limit. It took effect July 4. The structure matters: borrowers who take a 7(a) loan first can get up to $5 million through 7(a) and up to another $5 million through 504. Administrator Kelly Loeffler called it the "largest financing opportunity in agency history" and noted that "SBA's loan limits have not been raised for more than a decade."

For hotels, this is the change owners asked for. "Biggest gripe is construction costs. The SBA limit of $5 million is not enough," former AAHOA chairman Mukesh "Mike" Patel told Asian Hospitality in February. With new select-service construction now running around $200,000 a key in HVS's 2026 cost survey, a $5 million cap stopped covering much of a modern hotel years ago. The stacked structure puts larger acquisitions and small new builds back within reach of SBA financing.

Change Two: The Door Narrowed

Here is the part the press release didn't lead with. Since March 1, 2026, every direct and indirect owner of an SBA borrower must be a U.S. citizen or U.S. national whose principal residence is in the United States. Lawful permanent residents, green card holders, can no longer own any share of the business.

The path there took ten weeks. In December 2025, the SBA issued a notice that would have allowed up to 5 percent combined ownership by certain non-citizens starting January 1. On February 2, 2026, it rescinded that notice and moved green card holders into the definition of "Ineligible Person," effective March 1. On July 1, the Government Accountability Office ruled that the change is a rule under the Congressional Review Act, and noted that the SBA had not submitted it to Congress as that law requires. On July 23, Sen. Edward Markey and Rep. Nydia Velázquez introduced a resolution to overturn it. Their office estimates the SBA made more than $5 billion in loans to green card holders across all industries in fiscal 2025. In September, more than 120 small businesses and community groups signed a letter urging the Senate to pass the resolution. As of this writing, the rule stands.

No industry should pay closer attention. Hotel ownership in this country is built heavily by immigrant families, and many new owners hold green cards for years before they naturalize. "Once they move and they change those rules, it impacts private sector lending," Bharat Patel, AAHOA's 2023 to 2024 chairman, told Asian Hospitality. "It is owning your own business."

What it means at the deal table: a partnership with a single green card holder at any percentage cannot use SBA financing for that hotel. That includes the buyer you were counting on for your exit.

Change Three: The Money Costs More

The Federal Reserve raised rates on Sept. 16, and the prime rate moved from 6.75 percent to 7.00 percent. The SBA caps variable rates on 7(a) loans over $350,000 at the base rate plus 3 percentage points, so the ceiling on a typical hotel loan is now 10 percent.

New fees started Oct. 1. For FY2027, a 7(a) loan between $700,001 and $5 million pays an upfront guaranty fee of 3.5 percent on the guaranteed share up to $1 million and 3.75 percent on the guaranteed share above that, and the lender pays an annual service fee of 0.55 percent of the guaranteed balance, which it is not allowed to pass on to the borrower. On a $5 million loan with the standard 75 percent guaranty, the upfront fee is $138,125, about 2.8 percent of the loan. One break worth knowing: loans of $700,000 or less to businesses in rural areas pay no upfront fee this year. That won't buy many hotels, but it can fund a PIP or a roof on a small-town property.

Lenders also have more ways to price. Since March 1, 7(a) variable loans can float on the 5-year or 10-year Treasury or SOFR, not just prime, as long as the total never exceeds what prime plus the allowed spread would be. Ask for the comparison in writing.

Change Four: 504 Raised the Bar

The 504 loan, the long fixed-rate piece hotel buyers stack behind a bank first mortgage, got tougher on Oct. 1. Under SOP 50 10 8.1, the minimum debt service coverage ratio rises from 1.0 to 1.15, measured on EBITDA against all debt service after the deal, according to SomerCor, a 504 lender. Projects of $5 million or more now also need the SBA to review the bank's own credit memo. In plain terms: a hotel carrying $1 million a year in total debt payments now has to show at least $1.15 million in cash flow, not $1 million.

What the Math Looks Like

Here is an illustration, not a real deal. A buyer borrows $5 million through 7(a) on a 25-year schedule at the 10 percent ceiling. The monthly payment is about $45,435. At last summer's ceiling of 9.75 percent, it would have been about $44,557. That quarter-point costs about $878 a month, or about $10,500 a year, before the $138,125 upfront fee. Add a 504 loan on top and the property now has to clear 1.15 times the combined payment.

The bigger ceiling is real. So is the bill for using it.

Five Things to Do Before You Sign a Term Sheet

  1. Check every owner, not just the guarantor. List every person and entity in the ownership chain, including LLC members and trusts, and confirm each one's citizenship before a lender spends a month on your file.
  2. Run the stack. If the deal needs more than $5 million, ask your lender to model the 7(a) first plus 504 structure against a conventional loan. Our Transaction Tracker shows what comparable hotels have sold for per key, which is the first thing the appraiser will check: hoteliertimes.com/hotel-transactions-desk/
  3. Test 1.15, not 1.0. Run your trailing 12-month EBITDA against all proposed debt service. If it doesn't clear 1.15, fix the price or the equity now.
  4. Budget the fee. The upfront guaranty fee is real money, about 2.8 percent of a $5 million loan. Ask whether it is financed into the loan and how that changes your coverage.
  5. Sellers, know your buyer pool. If your best buyer is a green card holder, SBA financing is off the table for now. Expect a conventional loan with more equity, or be ready to discuss seller financing, and price your listing accordingly.

The Bottom Line

For thirty years the SBA has been the quiet engine of small hotel ownership in America, and its numbers say the bet worked: hotels borrowed more than any other industry and lost money at a fraction of the program's rate. In 2026 Washington gave the engine more horsepower and fewer drivers. If you can borrow, you can borrow twice as much as last year, at a higher price and a higher bar. If you can't, the most important hotel financing news of the year is that you'll need another way in.

Thinking about selling? List your hotel with photos for a flat monthly fee, with no commission, at hoteliertimes.com/hotels-for-sale/

Sources

The Hotelier Times cover, Vol. 16, Oct. 22, 2026: Two-Speed Hotel America
This week’s issue · Vol. 16 · Oct. 22, 2026

Two-Speed Hotel America

Nine stories, six priced deals and the week’s CoStar numbers, written for hotel owners.

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