The financial impact of the COVID-19 pandemic on the hospitality sector is still being calculated, but lending institutions like Philadelphia-based Liberty SBF are helping hoteliers get control of their economic situation as travel resumes.
Alexander Cohen co-founded Liberty SBF in 2011 as an outgrowth of work he was doing with the Small Business Administration. “We saw an opportunity to fill a void that had occurred after the Great Recession,” he said. “A lot of banks had pulled back in terms of lending, particularly to companies within the loan size of $3 [million] to $15 million.” The company was founded to co-lend with the SBA through the administration's 504 program, but also offers conventional and bridge loan options for hotel owners.
Today, the company primarily finances real estate transactions as well as furniture, fixtures and equipment. “The real estate lending programs that we focus on really can be utilized for acquisitions of existing assets, but can also be used to build ground-up new assets,” Cohen said.
PPP Loans
The SBA gained “a lot of notoriety” during the pandemic, Cohen said, because the government utilized it to provide subsidies to businesses through the Paycheck Protection Program and other disaster initiatives. “And hotels were big beneficiaries of those programs,” he said. The SBA also manages two loan guarantee programs during ordinary times and through times of crisis. Hotel owners are eligible for loan proceeds from both the SBA 7A and SBA 504 programs, and Liberty SBF specializes in the SBA 504 program, which is a fixed rate, larger loan program for hotel borrowers. “It's a program that we've been working with and are one of the top lenders in since inception back in 2011,” Cohen said.
Between 15 and 20 percent of the loans Liberty SBF helped organize during the pandemic were for hotel-related projects, and Cohen estimates that the company helped secure several hundred million dollars for hospitality businesses. “We were able to work with our borrowers to help them weather the storm,” he said. Since the PPP has ended, the company has gone back to core lending, signing some ground-up construction deals.
Opportunities
Cohen sees a number of opportunities today for hotel owners to consider. While the Paycheck Protection Program to support small businesses has ended, the SBA is still offering major subsidies to hotel owners through flagship loan programs, he said. Experienced sponsors with adequate net worth and liquidity can use SBA loan programs to do ground-up construction, or even as a vehicle for refinancing. “It's able to provide really low-cost, fixed-rate financing for borrowers that have existing properties and that are looking to refinance those properties,” he said.
The SBA recently implemented a rule that lets property owners refinance from an SBA 7A loan into an SBA 504 loan, moving from a typically floating rate loan into a low-cost, fixed-rate loan, and even pulling some cash out to be used for working capital. “[When] hotel builders and developers utilize SBA financing to develop hotels ground-up, a lot of times they're utilizing the SBA 7A program because that's the preferred loan program by a lot of bank lenders,” Cohen explained, acknowledging that Liberty SBF does not specialize in the 7A program. “The Small Business Administration loan programs provide a lot of support for hotel owners today, even as we've gotten past the PPP program,” he added, encouraging hotel owners to consider refinancing—“especially given the fact that there is less liquidity financing hotels today, given the disruptions that occurred during COVID.”
The government, Cohen said, is supporting these types of refinances to help businesses—“particularly hotels”—right-size their balance sheet and get through the next 24 to 36 months.
Logic in Logistics
The Liberty SBF team downsized its office footprint during the COVID pandemic, but also increased the number of employees, adding up to 400 remote workers to handle PPP claims. “We have a very, very good infrastructure to accommodate a remote workforce,” Cohen said. “We've been able to switch pretty seamlessly. We're now starting to think about more of a hybrid model, but we were able to continue lending—and accelerate lending—in a remote work environment."
Clicking with Clients
Liberty SBF traditionally had done a good amount of its business in person, but all that changed when COVID hit. The company invested in technology to continue communicating with both lenders and borrowers, including over video conferences. With infection numbers down, the team members are now going back to in-person site visits. “But one of the things that helps us tremendously has been our investment in technology,” Cohen said. “We recently rolled out an online portal for all of our core loan products, which is a technology that we had invested in for PPP.” Potential borrowers can apply online using an automated process and provide the team with the information that they need while “working hand in hand” with a lender who can help them complete the process. The investments in both internal technology and leveraging other platforms for communication have helped the company accelerate into this new post-COVID world, according to Cohen.