Updated November 13, 2026
Quick answer
Both flagged and independent hotels can get SBA 7(a) or 504 loans if more than 50% of revenue comes from stays of 30 days or less. A brand that meets the FTC franchise definition must be on the SBA Franchise Directory. Independents skip that step, but lenders often ask for more equity and lean harder on the operator. Axiant Partners, a broker in Boca Raton, finds lenders for both. Ranges are typical, not a quote.
Where This Fits
This guide covers one decision inside hotel financing: whether the hotel carries a brand. The SBA eligibility test is the same either way. What changes is the paperwork, the questions the lender asks and, often, how much cash the lender wants from you. If you are weighing SBA against CMBS or a bank loan instead, read SBA vs CMBS vs bank hotel loans.
What a Flag Changes in SBA Underwriting
Under SBA SOP 50 10 8.1, if a hotel brand meets the FTC definition of a franchise, it has to be listed on the SBA Franchise Directory before a lender can submit or approve the loan. If the brand isn't listed, the loan can't go forward until the franchisor gets it added. Most large hotel brands are already listed, but check the exact brand name and agreement type, not just the parent company.
- Executed franchise agreement. For a 7(a) loan the lender must have the signed franchise agreement, and anything else the franchisor requires you to sign, before any money is disbursed. On a 504, the CDC's closing counsel certifies those documents.
- Management agreements. A hotel management agreement that is part of the brand's franchise disclosure documents doesn't need a separate review. One that isn't must be read to make sure it doesn't turn you into an ineligible passive business.
- Brand performance data. Lenders commonly ask for the franchisor's reports and a competitive-set report alongside the hotel's own financials.
- Franchise term. Lenders often compare the years left on the franchise agreement with the loan term. A sale usually triggers a new agreement and a PIP; see how PIP financing works.
What Independent Hotels Get Asked Instead
An independent has no Directory step and no franchise agreement, so underwriting rests on the property and the operator. These are common lender practices, not SBA rules:
- Booking sources. How much revenue comes from online travel agencies, direct bookings, groups and repeat guests, and what that costs in commissions.
- Clean books. Three years of financials that tie to tax returns, plus the property management system's occupancy and rate reports.
- The transient test. Independents drift into weekly and monthly rentals more often than branded hotels. More than half of the prior year's revenue has to come from stays of 30 days or less.
- Soft brands and affiliations. A marketing or soft-brand agreement may still meet the FTC franchise definition. If it does, it needs to be on the Directory.
- Who runs it. Without brand systems, the lender wants to know who sets rates, sells rooms and manages staff. See how lenders judge hotel experience.
Side by Side
| Flagged hotel | Independent hotel | |
|---|---|---|
| SBA eligibility test | Over 50% of revenue from stays of 30 days or less | Same |
| Franchise Directory | Brand must be listed if it meets the FTC definition | Not needed unless an affiliation meets the definition |
| Key documents | Franchise agreement, PIP, brand reports | Own financials, PMS reports, booking mix |
| Management agreement | Exempt from review if part of the brand's FDD | Reviewed for passive-business risk |
| Main lender worry | PIP cost and franchise term | Rate and occupancy without a brand |
| Equity lenders commonly ask | About 15%, above the 10% SBA minimum | Often 15-25% |
The 10% is the SBA minimum on a 7(a) initial acquisition. The ranges above are common lender practice and vary by deal. On a 504, hotels are limited or special purpose property, so the borrower puts in at least 15%, or 20% if the business is two years old or less.
Worked Example: Same Price, Different Equity
Illustrative numbers, not a quote. Two hotels sell for $2,500,000 with about $50,000 of closing costs. Assume one lender asks 15% down on the flagged hotel and 20% on the independent, a 9.5% rate and a 25-year term. The 25-year term assumes at least 85% of project costs are real estate, which the SOP requires for that term on a hotel purchase.
| Flagged | Independent | |
|---|---|---|
| Project cost | $2,550,000 | $2,550,000 |
| Buyer's cash | $382,500 | $510,000 |
| Loan | $2,167,500 | $2,040,000 |
| Monthly payment | $18,940 | $17,820 |
| Cash flow needed at 1.25x | $284,060 a year | $267,350 a year |
The independent buyer brings $127,500 more cash but needs about $16,710 less cash flow a year to cover the payment. Guaranty fees are left out to keep the comparison clean.
Before You Make an Offer
- Look up the brand on the SBA Franchise Directory by its exact name.
- Run the transient test on last year's revenue by length of stay.
- Ask the brand what a sale triggers: new agreement, PIP, fees.
- For an independent, pull booking-channel data and three years of books.
- Read any management agreement for who controls staff, money and accounts.
Rates differ less by flag than by deal size and cash flow; see hotel loan rates for 2026. In a small town, a USDA hotel loan may also fit.
Talk to an SBA specialist: (561) 268-0465, or get matched with hotel lenders.
Frequently Asked Questions
Can an independent hotel get an SBA loan?
Yes. Hotels are eligible if more than 50% of the prior year's revenue comes from guests staying 30 days or less, whether or not they carry a brand. Lenders lean more on the operator and the hotel's own records.
Does my hotel brand have to be on the SBA Franchise Directory?
Yes, if the brand meets the FTC definition of a franchise. A lender can't submit or approve the loan until the brand is listed.
Is it easier to finance a flagged hotel?
Often. Brand systems and reporting give lenders more to rely on. The trade-off is a PIP and franchise fees that raise the project cost.
Does a hotel management company make me a passive owner?
It can. Unless the agreement is part of a listed brand's disclosure documents, the lender must check that it doesn't give the manager sole control of staff, finances and bank accounts.
How much down for an independent hotel?
The SBA minimum on a 7(a) purchase is 10%, and many lenders want more on independents, often 15-25%. A 504 needs at least 15%.
Sources & Further Reading
- SBA SOP 50 10 8.1 (effective October 1, 2026) — The SBA's rules for 7(a) and 504 loans, including equity injection, Appendix 15 on changes of ownership, and eligibility.
- SBA Franchise Directory — The SBA's list of brands eligible for SBA financing; a brand that meets the FTC definition of a franchise must be listed.
- 13 CFR 120.910: 504 borrower contribution — 15% for a limited or special purpose building or a business two years old or less; 20% when both apply.
- SBA 7(a) Loans — Program overview and the $5 million maximum loan amount.
Figures above describe ranges commonly seen across lenders and reflect published guidance as of the date on this page. Confirm current terms with the cited source or your lender before acting.