Despite opposition from Republicans, Congress recently passed and President Obama signed into law the Small Business Jobs and Credit Act of 2010. The legislation could prove to be a boon for some hotel real estate entrepreneurs, say industry experts, particularly those looking to develop in the limited-service segments of the business.
Still, the near-term effects of the law depend greatly on consumer demand for lodging. Despite year-over-year gains in occupancies and rates, the performance of the U.S. hotel industry remains relatively weak compared with the peak years of 2006 and 2007. As a result, few hotels of any size will probably be developed in the new few years.
“It’s great for our industry,” says Choice Hotels President & CEO Steve Joyce, “although I believe it will have more impact in the short term on the transactions side of the business rather than development.” That’s likely because the availability of capital should become more widespread.
The act includes a wide range of provisions that combine incentives, new regulations and tax cuts to help hotel developers and other small businesses rebound from the lasting effects of the recession. Key elements of the law include:
• Higher limits and other incentives for the SBA loan program. The size limits on SBA 7(a) loans rise from $2 million to $5 million, and government guarantees on those loans go up from 75% to 90%. Similarly, loan limits are raised from $1.5 million to $5.5 million for 504 loans and from $300,000 to $1 million for 7(a) “express” loans. The loans won’t be subject to fees through the end of 2010.