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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In short
Supporting hotels at every stage.
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.
How can a hotel fund fire safety and energy upgrade works?
Many hotels split the bill. Fire doors, alarms and compartmentation usually go into a term loan or refurbishment facility, while heat pumps, solar panels, battery storage and new boilers can be funded on asset finance secured on the equipment. Smart Funding Solutions, a whole-of-market commercial finance broker, approaches lenders that fund both, so the works can be phased around the season rather than waiting until the cash builds up.
Start with the fire risk assessment
The fire risk assessment usually sets the list of works. In England, GOV.UK's guide for people with duties under fire safety legislation says you must keep a record of your completed assessment, and where a company runs the hotel it is the company itself that carries the duty. Lenders and valuers ask for that record, so actions still open in it can slow a refinance or a sale. Price every action before you apply, because lenders want costed works, not a single estimate.
Funding the safety works
Fire doors, emergency lighting and alarm upgrades become part of the building, so they rarely suit asset finance. A secured business loan, an unsecured term loan or fit-out and refurbishment finance is the usual route, and many owners fold the safety works into a bedroom refurbishment so the rooms close only once.
Can I get a loan for solar panels or a heat pump at my hotel?
Yes. Renewable energy finance covers solar, battery storage, heat pumps, biomass boilers and EV chargers, repaid over a term the lender sets with the expected life of the equipment in mind. Leasehold hotels need the landlord's consent, and listed buildings may need consent for roof panels or external units, so allow time for both.
Illustration only. A 40 bedroom hotel needs £150,000 of work. Rather than one loan, the owner funds a £90,000 heat pump and roof solar system on asset finance over a longer term, and £60,000 of fire doors and alarm upgrades on a three year loan, so the shorter debt clears first. Instant Quotes shows which lenders on our panel fund energy equipment for hotels, with no credit search, and owners refinancing at the same time can read about hotel refinance.
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.
“He is fair and always gives advice that is in the best interest of his clients.”
- 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 →
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
About hotel finance
Specialist knowledge. Better outcomes.
Hotel finance is borrowing used to buy, refurbish, expand or run a hotel, boutique hotel, guest house or B&B.
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.
- Access to 300+ lendersWhole-of-market search across our lender panel.
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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.…
Types of hotel funding
-
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.
-
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.
-
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.
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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.
Funding needs
Funding options for hotels
Choose the need, and we’ll show you how lenders usually structure it.
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.
How do hotels keep up loan repayments in the quiet season?
By choosing borrowing that flexes with trade and testing fixed repayments against the whole year's cash, not the summer's. Smart Funding Solutions, a whole-of-market commercial finance broker, compares term loans, revolving credit and card-based funding from lenders that understand seasonal hotels, and sets the options side by side on total cost.
01
Structures that follow the season
- Revolving credit. A revolving credit facility can be drawn through the winter and cleared from summer takings, with interest charged on what you draw, although some lenders also charge arrangement or non-utilisation fees.
- Merchant cash advance. A merchant cash advance is repaid as a share of card takings, so repayments shrink when trade does. It usually costs more than a loan, so test it with the merchant cash advance calculator.
- A term loan sized on the year. Ask whether a lender will consider a repayment profile that is lighter in the winter months, and size the loan on annual profit rather than peak months.
02
A worked example
Illustration only, with round figures and no rates. A coastal hotel takes most of its turnover between May and September. Its existing loan costs £4,000 a month, which is easy in August and painful in February, when takings barely cover wages. The owner keeps the loan for the refurbishment it paid for, and adds a revolving facility drawn from November to February and cleared by July, so the winter shortfall no longer comes out of the reserve meant for the next refurbishment. Our guide to seasonal business finance covers the planning side.
03
Can a hotel get a loan to pay its VAT bill?
Yes. A VAT loan pays HMRC on time and spreads the bill over the following months. HMRC's VAT Notice 709/3 on hotels and holiday accommodation confirms that hotel accommodation has been charged at the standard rate since 1 April 2022, so a strong quarter can leave a large bill just as trade slows. The same notice explains that for a guest staying more than 28 days in a row, VAT from the 29th day is charged only on the part of the payment that is not for accommodation, which matters if you house contractors or long-stay guests. Check a bill with our VAT calculator, compare a loan with an HMRC arrangement in Time to Pay or a tax loan, or use Instant Quotes to see which lenders on our panel may fund it. Our case study on four facilities for a hotel shows seasonal funding arranged more than once.
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.
Underwriting
How lenders assess hotels: RevPAR, channel costs and safety duties
Hotel lenders look beyond occupancy to how profitably each room is sold and what the building needs to stay compliant.
Some asset lenders on our panel exclude hotels, while hospitality specialists welcome them. If you already own a hotel and want better terms, see hotel refinance; parks with lodges and touring pitches are covered in caravan park and campsite finance.
01
Revenue per available room
RevPAR combines occupancy and room rate, so a hotel filling rooms at heavy discounts scores lower than its occupancy suggests. Lenders compare RevPAR with similar hotels nearby.
02
Booking channel commission
Online travel agents charge commission on each booking. A hotel taking most bookings direct keeps more of each room sale, and lenders look at the channel mix.
03
Fire safety in sleeping accommodation
Hotels must keep an up-to-date fire risk assessment under the fire safety order, and lenders and valuers ask for it; see GOV.UK on fire safety responsibilities.
04
Furniture and refurbishment cycle
Rooms need refurbishing every few years. Lenders check a reserve is set aside, or that the next refurbishment is planned into the borrowing.
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.
Hotel mortgages and hotel financing: freehold, leasehold and who lends
A hotel mortgage is a commercial mortgage secured on a trading hotel, and it differs from an ordinary commercial mortgage because the lender is lending against the business as much as the building. Hotel lending typically sits at a lower loan-to-value than ordinary commercial premises, so buyers usually need a substantial deposit; our guide to the commercial mortgage deposit explains how lenders set it.
Freehold, leasehold and investment hotels
| Situation | Usual funding route | What lenders focus on |
|---|---|---|
| Buying a freehold hotel to run yourself | Owner-operated hotel mortgage | Trading accounts, your experience and your deposit |
| Buying a leasehold hotel business | Business loan, asset finance or a loan secured on other property | Lease length and rent, and trading figures, as there is no freehold to secure |
| Buying a hotel let to an operator | Commercial investment mortgage | The lease terms and the operator's strength |
| Converting a building into a hotel | Bridging or development finance, then refinancing | Planning, costed works and the exit |
Who lends on hotels
Hotel financing comes from high-street banks, challenger and specialist banks, and private and alternative lenders. Banks tend to favour established operators with steady trading, while specialist lenders may consider first-time owners, seasonal locations or hotels with weaker recent figures, usually at higher cost or lower loan-to-value. Appetite also varies with the hotel's size and location, which is why we compare lenders on our panel rather than start with one.
Opening a boutique hotel or buying your first hotel
For a first hotel or a new boutique hotel, lenders look for relevant management experience, an experienced general manager, a strong deposit or a partner with a track record. A conversion also needs planning for hotel use and a realistic forecast of occupancy and room rates. Our page on buying a hotel with a commercial mortgage covers deal structures and lender checks in more detail.
When a hotel loan becomes regulated
If the owners' accommodation is a large part of the building, the loan may become a regulated mortgage. Under the FCA's rules, a loan secured on land where at least 40% is used as a dwelling by the borrower or a related person is generally a regulated mortgage contract, as the FCA Handbook guidance explains. We arrange commercial finance only, so in that case a regulated mortgage adviser is the right first call.
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.
How much deposit do I need for a hotel mortgage?
It depends on the lender, the hotel's trading record and your experience. Hotel lending is usually set at a lower loan-to-value than ordinary commercial mortgages, so expect a substantial deposit, and a larger one if you are new to the sector or the hotel is underperforming. Additional security, such as a charge over another property, can sometimes reduce the cash you need to put in.
Can I get finance to open a boutique hotel?
Yes, but a new boutique hotel is a start-up in lenders' eyes, so the case rests on your experience, your deposit and a credible plan. Lenders want costed works, planning for hotel use, realistic occupancy and room rate forecasts, and evidence of how repayments are met before the hotel reaches full trade. Bridging or development finance often funds a conversion, with a hotel mortgage refinancing it once trading is proven.
Is a hotel mortgage different from a holiday let mortgage?
Yes. A holiday let mortgage is generally for a property let to guests for short stays and is assessed mainly on the property and its expected rental income. A hotel mortgage funds a trading hospitality business, so lenders review accounts, occupancy, room rates, management experience and staffing as well as the building. Larger serviced accommodation with a reception, food and staff will usually need hotel or commercial lending.
How do I fund buying a hotel as a going concern?
A trading hotel is usually bought with a commercial mortgage sized on a specialist valuation of the hotel as a trading business, plus your deposit, and sometimes a separate loan or seller finance for part of the price. Lenders look at the hotel's trading history, occupancy and room rates, and your hospitality experience. See buying a hotel, our acquisition finance guide and Instant Quotes.
How can a hotel fund fire safety and energy upgrade works?
Many hotels split the cost. Fire doors, alarms and compartmentation go into a term loan or refurbishment facility because they become part of the building, while heat pumps, solar panels, batteries and boilers can go on asset finance secured on the equipment. Start from your recorded fire risk assessment and cost every action. Smart Funding Solutions, a whole-of-market commercial finance broker, approaches lenders that fund both.
Can I get a loan for solar panels or a heat pump at my hotel?
Yes. Asset finance can cover solar panels, battery storage, heat pumps, biomass boilers and EV chargers, repaid over a term the lender sets with the expected life of the equipment in mind. Leasehold hotels need landlord consent, and listed buildings may need consent for roof panels or external units, so allow time for both before the installer starts.
How do hotels keep up loan repayments in the quiet season?
Use borrowing that flexes with trade, such as a revolving credit facility drawn in winter and cleared in summer, or a merchant cash advance repaid as a share of card takings. Size any term loan on annual profit, not peak months, and ask whether a lender will consider lighter winter repayments. Smart Funding Solutions, a whole-of-market commercial finance broker, compares these from lenders that understand seasonal hotels.
Can a hotel get a loan to pay its VAT bill?
Yes. A VAT loan pays HMRC on time and spreads the bill over the following months. Hotel accommodation has been charged at the standard rate since 1 April 2022, so a strong quarter can leave a large bill as trade slows. Compare the cost with an HMRC Time to Pay arrangement before choosing.
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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