Hotel commercial mortgages: financing the purchase of a hotel
A hotel is usually bought with a commercial mortgage secured on the property and lent against its trading valuation, so both loan-to-value and profit cover…
Hospitality
Hotel finance to buy, refurbish or expand a hotel
How hotels and guest houses fund a purchase, refurbishment, extra rooms or quiet months, and how lenders weigh occupancy, room rates and the property itself.
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- Amount
- From £10,000 to £10 millionLarger amounts through secured, property and asset-based finance
- Security
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In short
How a hotel is funded depends on the job.
A purchase or freehold usually needs a commercial mortgage with a deposit; a large conversion may use bridging or staged development finance; bedrooms, kitchens and laundry kit often suit asset finance; and winter wages can be covered by revolving credit or card-based funding. Lenders focus on occupancy, room rates, booking-site commission and how repayments are met off-peak.
- Buying a hotel
- Refurbishment and renovation
- Expansion
- Guest amenities and technology
- Energy-efficiency upgrades
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About hotel finance
Hotel finance is borrowing used to buy, refurbish.
Hotel finance is borrowing used to buy, refurbish, expand or run a hotel, boutique hotel, guest house or B&B, from commercial mortgages on the building to equipment leasing and working capital facilities. The right product depends on what you are funding: buying a freehold is very different from replacing bedroom furniture or covering wages over winter.
Smart Funding Solutions is a whole-of-market broker. We search our panel of 300+ lenders, including banks, specialist hospitality lenders and alternative finance providers, and put your case to those best suited to it. This page is part of our hospitality business loans section.
Hotels are unusual borrowers because they are both a property and a trading business. A lender will value the building, but it will also look at how well it trades: occupancy, average room rate, revenue per available room, food, drink and events income, and how much business comes through booking sites that take commission. Seasonal hotels also need to show how fixed repayments are met in the quiet months.
Funding needs
What hotel finance can be used for
Buying a hotel
a first hotel purchase, adding a property to a portfolio, or buying the freehold of a hotel you currently lease.Refurbishment and renovation
bedrooms, bathrooms, public areas, kitchens and exteriors.Expansion
adding rooms, a spa, function space or a restaurant.Guest amenities and technology
furniture, Wi-Fi, booking and property management systems, TVs and laundry equipment.Energy-efficiency upgrades
heating, insulation, lighting and water systems that cut running costs.Working capital
wages, suppliers and bills through quieter periods.Marketing
campaigns to raise direct bookings and reduce reliance on booking-site commission.Franchise opportunities
the costs of joining or converting to a hotel brand.
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A transaction we arranged
£35,000
£35K secured on the business premises, not the family home.
A pub and B&B wanted secured funding but needed clarity on where the security would sit. The charge went on the trading property.
Read the transaction- Sector
- Pub and B&B
- Structure
- First-charge secured loan
- Outcome
- Kept off the director's home
Types of hotel funding
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Commercial mortgages
Learn moreLong-term borrowing secured on the hotel property, used to buy or refinance. Lenders value the hotel as a trading business as well as bricks and mortar, so accounts and trading performance matter alongside the property itself. Valuers usually assess a hotel as an operational business, based on the trade it can sustainably produce, so a weak trading year can lower the valuation as well as the affordability figures. Lenders also differ in appetite: some will not lend on hotels outside their preferred size, location or trading history, which is why the same case can be declined by one lender and accepted by another.
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Bridging loans
Learn moreShort-term secured finance for when speed matters, such as buying at auction, completing before longer-term funding is in place or funding a refurbishment before refinancing. Read our guide to bridging loans.
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Refurbishment and development finance
For larger projects, such as converting a building into a hotel or substantially extending one, lenders may release funds in stages as work progresses. See property development finance for how staged funding works.
-
Secured and unsecured business loans
A secured business loan uses property or other assets as security and can offer larger sums and longer terms. Unsecured loans are quicker to arrange for smaller projects but usually need a personal guarantee.
-
Asset finance
Learn moreHire purchase or leasing for equipment such as kitchen kit, laundry machines, furniture and technology, with the asset acting as security.
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Merchant cash advance and working capital facilities
A merchant cash advance is repaid as a share of card takings, which can suit a seasonal hotel. Revolving credit gives a facility to draw on and repay as needed.
The operating cycle
Where finance fits into your hotel
Cash leaves the business at every stage before it comes back. Each stage below is a point where the right facility can carry the gap.
-
01 Win work
Orders, contracts or customers secured.
- 02
Buy in
Stock, materials and equipment paid for up front.
Asset finance → -
03 Pay people
Wages and suppliers paid on time.
Working capital → -
04 Deliver
The work is done or the goods are sold.
- 05
Get paid
Customers pay, sometimes weeks later.
Invoice finance → -
06 Tax
VAT and Corporation Tax fall due.
HMRC loans → - 07
Invest
Growth, a new site or new equipment.
Business loans →
Funding needs
Funding options for hotels
Choose the need, and we’ll show you how lenders usually structure it.
Explore this section
In this section
More detail on specific needs within this topic.
Hotel refinance: replacing debt and releasing equity from your hotel
Hotel refinance is a new secured loan on a hotel you already own that repays your existing lender and can release extra capital from the property's equity.…
Costs, terms and things to check
Rates and terms depend on the product, the loan size, the term, your credit profile, trading history and the security offered. Secured borrowing against a hotel property usually costs less and runs longer than unsecured borrowing. Always compare the total cost, and check arrangement fees, valuation and legal costs, early repayment charges and any personal guarantee.
Underwriting
What lenders look at
01
Trading performance
accounts, occupancy, average room rates and revenue from food, drink and events.
02
Experience
your track record of running a hotel or hospitality business. First-time buyers without experience may need a stronger deposit or an experienced manager.
03
Deposit and security
purchases usually need a meaningful deposit, and the hotel itself is normally the main security.
04
Business plan
for purchases, conversions and larger refurbishments, realistic forecasts showing how the project improves revenue.
05
Credit profile
the business's and the owners' credit history.
06
Affordability
whether cash flow supports repayments across the whole year, including off-peak months.
Checklist
Documents lenders usually ask for
- The last two to three years' accounts and current management figures
- Occupancy and average room rate figures, ideally month by month
- Recent business bank statements
- Property details: title or lease, and any existing charges
- A schedule of works with costings, for refurbishments
- A business plan and forecasts, for purchases, conversions and expansions
Pros and cons of hotel finance
Pros
keeps cash available for operations; lets you invest in the guest experience and improve room rates; long terms on property borrowing keep repayments manageable.
Cons
property is at risk if secured repayments are missed; seasonal income must still cover fixed repayments; valuations and legal work add cost and time to secured deals.
How the process works with us
- We discuss the project and how the hotel trades through the year.
- We review the figures and explain which types of finance are realistic.
- We approach suitable lenders and handle valuation and information requests.
- We compare offers with you, including fees, valuation and legal costs, and guarantees.
- The lender completes its underwriting and legal work and makes the final decision.
It is free to enquire, and any broker fee is disclosed separately before you proceed. Running a smaller guest house? Our guide to bed and breakfast loans covers issues specific to owner-occupied B&Bs.
FAQs
Questions clients ask
Can I get hotel finance to refurbish bedrooms?
Yes, hotel finance for bedroom refurbishment is usually arranged as a term loan, fit-out finance, or asset finance for furniture, bathrooms and technology. Lenders look at occupancy, average room rate, revenue per available room and how the refurbishment will lift trading. Owners with equity in the freehold may also refinance to release capital. Our page on fit-out and refurbishment finance explains the options in more detail.
Can a seasonal hotel get hotel finance?
Yes, seasonal hotels can get hotel finance, but lenders want to see how fixed repayments will be met in the quiet months. They review monthly trading figures, cash flow forecasts and reserves, and some may agree repayment profiles that reflect the season. A revolving facility can help cover winter wages. Our guide to seasonal business finance covers ways to manage uneven income.
Do hotel finance lenders need a personal guarantee?
Often, yes, particularly on smaller hotel finance deals and unsecured working capital. A commercial mortgage is secured on the hotel itself, but lenders frequently ask owners or directors for a personal guarantee as well, because the property's value depends on how well it trades. The amount and terms vary. Our guide to personal guarantees explains what to check before you sign.
Can I refinance my hotel to release equity?
Yes, hotel owners with equity in the freehold can often refinance onto a new commercial mortgage to release capital for refurbishment, expansion or another purchase. Lenders value the hotel on its trading performance, so recent accounts showing stable or improving profit help. Loan-to-value and profit cover both limit the amount. Our page on commercial property refinance explains how the process works.
Relevant transactions
More deals like this
£82.5K arranged against modest turnover and strong cash.
The amount was large relative to turnover. We placed it with a lender willing to look at the whole financial picture.
Business fundingRead the transaction
£179,000 across four facilities. A hotel that keeps coming back.
Repeat working-capital facilities for seasonal cash flow, staffing, maintenance and guest-facing investment.
Four facilitiesRead the transaction
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What our clients say
“Simon was fast, kept us updated at all stages and was a real pleasure to work with on our asset finance. I highly recommend this company: excellent service all round.”
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“Getting a business loan can feel like a bit of a minefield, but everything was broken down for me in great detail. Will use again in the future!”
“Simon was a pleasure to deal with and helped us find a business loan that matched our growth goals and future expansion plans.”
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