How to get a loan for a hotel

Investment in hotels in the UK is growing, hitting £3bn in H1 2024. However, while much of the market is currently driven by large players with significant cash balances investing in large portfolios, most hotel owners will need a hotel loan to power their business. 

When you're running or looking to buy a hotel, securing the right financing is crucial. Whether you're planning to refurbish, expand, or purchase your first hotel, understanding which loans are most suitable can determine the success of your venture.

‍

Can I get a loan to buy a hotel?

Yes, you can absolutely get a loan for a hotel, but it’s not always as straightforward as searching for "hotel loan." Many lenders don’t label their products specifically for hotels, which can make it difficult to navigate the options. Instead, you'll find more general financing options like commercial mortgages and bridging loans, which can be tailored to meet your hotel financing needs.

Here’s what you need to know to improve your chances of securing the right loan:

• Different lenders, different terms: Every lender offers a product with variable terms, including interest rates, repayment periods, and eligibility criteria. You’ll need to shop around and compare your options to find the most suitable loan for your hotel project.
• For most options, you’ll need a deposit: Just like with most property purchases, getting a loan for a hotel will require a deposit (unless you go for an unsecured loan). Typically, this ranges from 30% to 40% of the property’s value, so having some capital ready is crucial.
• A strong business plan is essential: Be prepared to submit a comprehensive business plan that outlines your financial forecasts, market analysis, and how you plan to manage the property.
• Relevant experience helps: If this is your first time buying a hotel, lenders will be especially interested in your experience in the hospitality industry. Even if you haven’t owned a hotel before, management experience in a similar role can work in your favour. If you lack that experience, consider partnering with or hiring someone who has it to strengthen your application.
• Investors vs. operators: If you're purchasing a hotel as an investment but won’t be managing it directly, you’ll need to account for this in your loan application. Lenders will expect you to hire experienced operators to manage the business, which can give them more confidence in your ability to make repayments.

What are the types of hotel loans?

Depending on the stage of your hotel business, there are a few different options available.

1. Commercial mortgage: Just like their housing equivalent, commercial mortgages are used for buying a hotel property. Commercial mortgages typically offer loan terms up to 25 years and require a strong trading history or a significant deposit as security.​.
2. Bridging loans: Bridging loans are a type of short-term finance to cover cash flow gaps or fund renovation projects. They’re ideal if you're purchasing a hotel and need funds quickly​ as they take less time to process than a commercial mortgage.
3. Refinancing loans: For hotels with existing debts and liabilities, a refinancing loan is a way looking to consolidate debt or improve cash flow​ by bringing multiple debts under a single loan.
4. Development finance: Designed for new builds or large refurbishments​​, property development loans are set up as a short-term business loan, only to be used during the build of the project. It is paid out in stages, where funds are released throughout the construction process, normally once key parts of the project have been completed.

How to get a business loan for a hotel

Step 1: Assess your financial needs

Before you apply, outline exactly how much funding you need and for what purpose—whether it's for purchasing, renovation, or maintaining cash flow. Assess your current trading performance, projected income, and overall business plan.

Step 2: Choose the right type of loan

Choose a loan that suits your needs. For example, if you're buying an existing hotel, a commercial mortgage might be best. If you need quick funds for a refurbishment, a bridging loan could be the answer​.

Step 3: Check eligibility criteria

Lenders, particularly high street banks, typically have strict eligibility criteria, including credit history, a solid business plan, and a deposit. Alternative lenders, like iwoca, focus more on your business performance and may offer more flexibility and quicker approvals​​.

Step 4: Compare lenders

You’ll want to compare loans from both high street banks and alternative lenders. While high street banks offer stability and potentially lower interest rates, they often require lengthy approval processes. Alternative lenders like iwoca can offer faster, more flexible terms, particularly for small businesses​​.

Step 5: Prepare your application

For a successful loan application, you'll need:

• A comprehensive business plan
• Trading accounts from the last 2–3 years
• A breakdown of your project costs (if applicable)
• A strong credit history

Some alternative lenders offer simplified processes and faster decision-making, basing approvals on your business’s performance instead of just credit scores​.

Step 6: Apply and await approval

Once your documents are ready, submit your application. High street banks may take weeks or months to approve, while digital lenders like iwoca can give decisions in as little as 24 hours​​.

Comparing loan options for hotels

It’s important to understand that each lender has its own terms. Here’s a quick comparison of the typical terms from high street banks and alternative lenders:

‍

Best practices for securing a hotel loan

1. Present a solid business plan: Lenders want to see how the loan will be repaid, and a strong plan outlining your hotel’s performance, future projections, and market demand is crucial.
2. Improve your credit rating: A higher credit score can lower your interest rate and improve your chances of approval.
3. Explore alternative lending options: While high street banks can offer lower rates, alternative lenders provide more flexibility and faster approvals​​.

What are some alternative funding options to finance a hotel?

If traditional bank loans or commercial mortgages don’t suit your needs, alternative funding options can offer greater flexibility, faster approval times, and less stringent eligibility criteria. These options are particularly helpful for small or growing hotel businesses, or when you need to raise funds quickly for a purchase, renovation, or operational expenses. 

1.  Short-term business loans

Short-term loans are a great option when you need immediate funds to cover a gap in cash flow, urgent repairs, or even a new hotel acquisition. Unlike traditional long-term financing, these loans are usually repaid over a shorter period—typically within 3 to 24 months.

iwoca’s short-term loans are particularly suitable for hotel owners who need fast access to capital. You can borrow up to £1 million with flexible terms tailored to your business needs. One of the key advantages of iwoca’s Flexi-Loans is speed and simplicity—you can apply online and get a decision within 24 hours. The focus is on your business’s trading performance rather than just your credit score or collateral, making it easier to get approved even if you don't meet traditional lending criteria.

These loans are ideal for:

• Hotel refurbishments: If you need to spruce up guest rooms or renovate your lobby.
• Covering seasonal dips: Hotels often experience seasonal fluctuations in bookings, so a short-term loan can help cover expenses during quieter periods.
• Expansion: Use a short-term loan to quickly capitalise on new opportunities, such as purchasing equipment for new services or funding marketing campaigns to attract more guests.

2. Asset finance

Asset finance allows you to spread the cost of essential equipment over a longer period, helping to preserve your cash flow. While this form of finance can’t be used to purchase a hotel itself, it’s an effective way to finance costly equipment or renovations once the property is operational. For example, you can use asset finance to upgrade your hotel’s kitchen, install new guest amenities, or refurbish rooms​.

3. Refinancing existing assets

If you already own property or have other assets, you can refinance them to free up capital for your hotel. This can include a second charge mortgage on your home or leveraging equity in another property to generate the deposit for a hotel purchase. Refinancing offers more flexibility than traditional loans and can provide a significant cash injection without having to go through the lengthy process of securing a new mortgage​.

4. Merchant cash advances

If your hotel already has strong card payment turnover, a merchant cash advance allows you to borrow against future credit and debit card sales. 

This type of funding is repaid directly through a percentage of your card transactions, making it an easy-to-manage option if your revenue is consistent. Merchant cash advances are particularly beneficial for covering short-term cash flow needs, such as marketing, staffing, or small improvements​.

Hotel loan FAQs

Is it possible to get hotel finance as a first-time buyer?

As a first-time hotel buyer, securing financing can be more complex, but it’s certainly possible. Most lenders don’t offer products specifically called “hotel finance,” but they provide more general types of business finance, such as commercial mortgages and bridging loans, that can be applied towards hotel purchases​.

However, securing a hotel loan as a first-time buyer requires more preparation:

• Strong business plan: You’ll need a thorough plan that shows how you intend to run and improve the hotel, backed up with financial projections​.
• Relevant experience: Most lenders will expect management experience in the hotel industry, even if you haven’t owned a hotel before. This experience reduces the perceived risk for the lender​.

If you're struggling to meet the criteria as a first-time buyer, consider working with an expert to navigate these requirements and present the strongest application possible.

What deposit do I need for a hotel mortgage?

Hotel mortgages typically require a higher deposit than residential mortgages. Most commercial lenders will expect at least 30% to 40% of the property's value as a deposit. However, this depends on several factors​:

• Hotel's past performance: If the hotel has a solid trading history, lenders may offer more favourable terms.
• Business projections: Strong future projections can help you negotiate better terms, including a smaller deposit.
• Your experience: Extensive industry experience can also influence how much deposit is required.

If you don’t have the required deposit, you could explore financing options such as asset finance or personal savings​.

What if you don't have a large deposit?

If you're unable to secure the standard deposit of 30% or more, you might still be able to move forward by offering additional collateral, such as your personal home or another asset. In other cases, you may be better off applying for an unsecured loan, which can offer up to £1,000,000 over two years, but may come with a higher interest rate.