Updated November 13, 2026
Quick answer
A hotel PIP can usually be rolled into an SBA 7(a) or 504 purchase loan because renovating an existing building is an eligible use. The PIP raises total project cost, so your equity rises with it. Building work can get up to 25 years, but furniture and soft goods pull the blended term down. Renovation over $350,000 brings bonding or construction monitoring. Axiant Partners, a broker in Boca Raton, finds hotel lenders. Typical ranges, not a quote.
What a PIP Covers and Why Lenders Care
A property improvement plan is the brand's list of required upgrades. A sale or a new franchise agreement usually triggers one. The hotel financing guide covers the basics; this page is about paying for it. Lenders split a PIP into two kinds of spending:
- Building work: roofs, HVAC, elevators, fire and life safety, bathrooms, parking, exterior and signage structures.
- FF&E and soft goods: beds, case goods, carpet, TVs, lobby furniture, linens and technology.
That split matters because SBA term limits follow what the money buys. Ask the brand for the PIP early and get contractor quotes for each line. A budget built from the brand's estimate alone tends to come in low.
How the PIP Changes Your Term
Under SBA SOP 50 10 8.1 Appendix 15, a hotel purchase can get a single 25-year term when at least 85% of total project costs are real estate. A PIP heavy in furniture and soft goods can push you under that line. Then the maturity is blended. The real estate share gets up to 25 years, everything else 10 years, and the result is weighted by use of proceeds and rounded to the nearest year.
13 CFR 120.212 also lets the real property portion run 25 years plus the time needed to finish the improvements. A long PIP doesn't eat into your amortization.
Construction Rules That Come With a PIP
- Bonds or monitoring above $350,000. If the construction part of a 7(a) loan is over $350,000, the contractor needs 100% performance and payment bonds plus builder's risk and workers' comp. The exception is a lender that uses a third-party construction manager or its own construction department with funds control. At $350,000 or less, the lender can follow its usual construction practice.
- Historic review. If you plan to alter or renovate the property, the lender must ask SBA counsel for a Section 106 historic preservation review. Older downtown hotels can take extra time here.
- No do-it-yourself. The SOP warns lenders that owner-run construction causes lien and completion problems. Expect to use a licensed general contractor.
- Draws. Lenders commonly hold the PIP money and release it as work is inspected, with lien waivers at each draw.
Worked Example: A Purchase With a $650,000 PIP
Illustrative numbers, not a quote. A buyer pays $2,800,000 for a limited-service hotel: $2,450,000 allocated to real estate, $250,000 to existing FF&E and $100,000 to goodwill. The brand's PIP is $650,000: $380,000 of building work and $270,000 of FF&E. Closing costs are $45,000.
| Item | Amount |
|---|---|
| Total project cost | $3,495,000 |
| Real estate share of costs | $2,830,000 (81.0%) |
| Passes the 85% test? | No |
| Blended term (25/10 yrs) | 22 years |
| SBA minimum equity (10%) | $349,500 |
| Equity at 15% | $524,250 |
| Loan at 85% | $2,970,750 |
| Payment, 9.5% over 22 yrs | $26,870 |
| Same loan over 25 years | $25,960 |
Without the PIP, 15% equity would have been $426,750. The PIP adds $97,500 of cash at closing and about $910 a month from the shorter blended term. Moving the existing FF&E and goodwill into a smaller share, or paying for soft goods with cash, can get a deal over the 85% line. The SBA guaranty fee, usually financed, is left out here.
A PIP on a Hotel You Already Own
If you aren't buying, the change-of-ownership rules don't apply. For a loan with mixed uses, the SOP allows up to 25 years if at least 51% of the proceeds go to real estate. Otherwise the term is blended. A PIP at renewal is often mostly building work, so it can clear 51% when the 85% purchase test would have failed. If the PIP comes with a new brand, see flag conversion financing.
Some owners finance FF&E separately with equipment financing so the SBA loan stays mostly real estate. Compare the total cost both ways before deciding.
Steps
- Get the PIP and quotes before you set the price.
- Tag each line as building work or FF&E, then work out the real estate share.
- Agree the completion deadline with the brand, and match the loan's draw schedule to it.
- Pick a licensed, bondable contractor if the work tops $350,000.
- Budget a contingency. Overruns usually come out of your cash, not the loan.
Talk to an SBA specialist: (561) 268-0465, or get matched with hotel lenders.
Frequently Asked Questions
Can an SBA loan pay for a hotel PIP?
Usually. Converting or renovating an existing building is an eligible use of SBA loan proceeds, so a PIP can be part of the project when you buy or as a separate loan later.
Does a PIP increase my down payment?
Yes. SBA equity minimums are based on total project cost, and the PIP is part of that cost.
Why would a PIP shorten my loan term?
On a hotel purchase, a single 25-year term needs 85% or more of project costs in real estate. Furniture and soft goods count as other uses, so a FF&E-heavy PIP can force a blended, shorter term.
Does the contractor need to be bonded?
If the construction part of a 7(a) loan is over $350,000, generally yes. The exception is a lender that uses third-party or in-house construction management with funds control.
Can I do the PIP work myself?
Lenders generally won't allow it. The SOP calls owner-run construction generally unsatisfactory because of lien and completion risk.
What if the PIP runs over budget?
Overruns usually fall on the owner. Build a contingency into your budget and keep cash in reserve.
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.
- 13 CFR 120.212: Maturities of 7(a) loans — 25-year maximum, plus a period to complete construction or improvements on real property.
- SBA 7(a) Loans — Program overview and the $5 million maximum loan amount.
- SBA 504 Loans — Fixed-rate financing for real estate and long-term equipment through Certified Development Companies.
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.