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Getting a commercial mortgage for a hotel
Various lenders will consider applications from those looking to buy or refinance a hotel business. Potential lenders will need to assess the viability of the business both now and in the future to ensure the investment is solid.
Our team of expert advisors have helped many people like you to find the perfect commercial mortgage for their hotel business. We work with hundreds of lenders, including those who specialise in the tourism and hospitality sector. If you're ready to get started, complete our simple online form today to see how much you could borrow.
Who is eligible for a hotel mortgage?
Hotel mortgages are generally assessed on a case by case basis, and there are several factors that lenders will take into consideration.
The nature of hotel businesses means that they have high overheads, and it is difficult to adapt to reduced demand. Lenders will be interested to know how you intend to sustain occupancy rates, mitigate risks to lower occupancy rates and maintain future demand.
As a relatively niche mortgage requirement, we would recommend engaging an experienced broker not only to recommend suitable lenders and boost your chances of a successful application but also to find the best rates.
Relevant Experience
Lenders will look more favourably on applicants with relevant industry experience working in the hospitality industry.
If you are relying on someone else to provide the day to day management and expertise, lenders will be interested in their experience. Having either academic or industry certification will also help, and lenders will be looking for valid licenses, for example, to allow food and alcohol sales on site.
Occupancy Rates
Lenders will consider the occupancy rates carefully as this is a critical success factor for hotel businesses, ideally with high revenues per room and average daily rates. They will also be interested in how these KPIs are monitored and what mechanisms can be implemented to improve the results if required.
Financial Performance
You can expect to provide a minimum of two years of previous trading history to potential lenders. They will be considering the affordability of the new finance as well as historical performance.
Marketing Strategy
Your lender will be interested in how you plan to market the hotel business to ensure that the intended occupancy rates are met.
Hotel Position
Where the hotel is located will be of interest to potential lenders. For those located close to high footfall areas, this is seen as beneficial to maintaining occupancy rates.
How to boost your chances of hotel mortgage approval
The best way to increase your chances of being approved for a hotel mortgage is by using a competent broker with specific experience in hotel mortgages. They will be able to help you to build a robust business case for the lender which ticks all the boxes. This will not only maximise your chances of success but also help to reduce the risk for lenders which means they may offer better interest rates.
How much deposit will I need for a hotel mortgage?
Commercial mortgages generally require a more considerable deposit than residential mortgages. This is to mitigate the increased risk to the lender of providing finance to businesses rather than individuals. Depending on the lender, the specific requirement of your hotel mortgage and historical financial performance and you may be required to contribute a 25-40% deposit.
You may be able to obtain financing without contributing a cash deposit by securing the loan against another asset with sufficient equity. There is the risk of losing both properties in this scenario, and we would recommend taking expert advice before making any decisions.
Can I get a hotel mortgage with bad credit?
Securing a hotel mortgage with bad credit is undoubtedly more challenging. However, not all bad credit is created equally, and lenders will be concerned with the age and severity of the credit issue.
You may find that with a specialist lender and higher interest rate that you are still able to secure a hotel mortgage with bad credit history; our advisors can help.
How can I finance a hotel refurbishment?
Staying up to date with the latest trends and technology as a hotel business can be costly, with experts recommending refurbishment activity every 3-6 years. There are several financing options available to cover the cost of refurbishment, for example, secured or unsecured business loans.
Our expert advisors can help you to understand the best sort of financing, depending on your needs.
Can I get a bridging loan to buy a hotel?
Bridging loans are a type of flexible, short term finance that can be arranged very quickly.
If you're buying a hotel development at auction, for example, bridging loans can be beneficial to ensure you have the funds within the short timeframe required. Unlike with a mortgage, you can also get a bridging loan to buy an uninhabitable property, which could be a hotel that needs refurbishment to bring it up to standard.
As you may expect with a short term finance option, the rates tend to be higher, and you will need a clear exit strategy for when the term finishes; which may be a standard mortgage.
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Can I get development finance to buy a hotel?
If you're looking to finance a hotel development project, either a build or refurbishment, development finance could be a viable option to consider.
With development finance, the funding is released in phases to align with the project, and you will only pay interest on the amount deposited so far. As with bridging finance, development finance is a short term option, and you will need to consider the future financing of the project once it is complete; which is likely to be a mortgage.
How can I learn more?
As a whole of market broker, our team have access to more than 20,000 mortgage deals, including those offered by lenders specialising in hotel finance. Get started today, and we promise to make your mortgage journey as stress-free and straightforward as possible.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
Last updated 29 February 2024