How to get a loan for a hotel

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

Whether you're planning to refurbish, expand or purchase your first hotel, securing the right financing is crucial. We explore the options available, how to apply and secure a loan and the key considerations for hotel owners seeking funding.

Can I get a loan to buy a hotel?

Yes, you can absolutely get a loan for a hotel, but finding one isn’t as straightforward as just searching for a hotel loan. Many lenders don’t label their products specifically for hotels and hospitality, which can make it difficult to navigate the options. Instead, you'll find more general financing options like commercial mortgages, bridging loans or secured business loans, which can be tailored to your needs.

Here’s what you need to know to improve your chances of securing the hotel financing:

• Different lenders, different terms: Every lender offers a finance product with unique terms, including their interest rates, repayment periods and eligibility criteria. You’ll need to shop around and compare your options to find the most suitable loan or finance solutions for your hotel project.
• For most options, you’ll need a deposit: Like with many property purchases, getting a loan for a hotel will require a deposit (unless you choose an unsecured business loan). Deposits typically range from 30% to 40% of the property’s value, so having existing 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 very 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 buying a hotel as an investment but won’t be managing it, you’ll need to account for this in your hotel loan application. Lenders will expect you to have experienced operators managing the business, giving them confidence in your ability to make repayments.

What are the main types of hotel finance?

There are various finance options available, depending on the stage of your hotel business and your funding needs. Below, we’ve outlined the main forms of hotel finance to consider when buying a hotel or seeking to invest in growth. 

Loans for buying or developing a hotel

Here are the main loan options if you need to borrow funds to buy a hotel or develop land or property for hospitality purposes:

• Commercial mortgages: You can use a commercial mortgage to purchase a hotel property. Mortgage lenders typically offer loan terms up to 25 years and require a strong trading history or a significant deposit as security.​
• Bridging loans: These are a type of short-term finance to cover cash flow gaps or fund renovation projects, and are ideal if you need funds quickly. They take less time to process than most other loans, and you can repay the funds using the proceeds of a property sale or once a longer-term finance agreement is secured.
• Refinancing loans: For hotels with existing debts and liabilities, refinancing is a way to consolidate debt or improve cash flow​ by bringing multiple debts under a single loan.
• Development finance: Designed for new builds or large refurbishments​​, property development loans are short-term business loans designed specifically for use during builds. Funds are paid out in stages, released throughout the construction process, usually at key project milestones.
• Secured business loan: Using a secured business loan to buy a hotel or support development projects can be an option for those seeking capital for multiple uses and to leverage other assets as collateral, rather than property. 

Alternative options for other hotel financing needs

If traditional bank loans or commercial mortgages aren’t quite right – perhaps you need capital to finance an existing hotel – explore alternative funding options, which can offer greater flexibility, faster approval times and less stringent eligibility criteria. They can benefit small or growing hotel businesses, plus those needing to raise funds quickly for a purchase, renovation or operational expenses. 

Consider the following alternative hotel financing solutions;

• Working capital loans: These short-term loans are a great option when you need immediate capital to cover cash flow gaps, fund urgent repairs or support seasonal demand. These can be unsecured loans that provide flexibility to meet the challenges of the hospitality sector,  helping businesses deal with fluctuating revenue, capitalise on opportunities and finance new equipment, increased staffing or marketing drives. 
• Asset finance: From hire purchase to finance leasing, asset finance agreements enable hoteliers to spread the cost of key assets and equipment, preserving cash flow and managing changing demands. This could be for furnishing new premises, upgrading facilities or acquiring new vehicles and other assets required in peak seasons.
• Business line of credit: A line of credit is a flexible financing solution that lets you draw down funds up to an agreed limit, where you only pay interest on the amount drawn. This is ideal for tackling fluctuating demand or covering any unexpected costs, plus as a revolving credit facility, it helps you manage the changeable nature of hospitality. 
• Merchant cash advance (MCA): If your hotel has proven turnover, MCAs can be a viable funding solution to boost your capital to fund expansion while aligning with your cash flow. An MCA is a form of revenue-based funding, where the loan is repaid as a percentage of future card transactions. As you only pay this proportion (a fixed borrowing fee) of your sales, it gives you room to manoeuvre and scale expenditure, according to slower periods or seasons where demand is high.
• Invoice finance: This specific funding option gives you access to cash tied up in unpaid invoices, freeing up working capital while you wait for clients to pay what’s owed. You get an advance of the vast majority of the invoice value upfront, quickly, to avoid cash flow problems and manage seasonal fluctuations without taking on long-term debt.  

All these options have their benefits and drawbacks, depending on your funding needs. So, consider the pros, cons and risks, get an understanding of eligibility criteria (for each solution and prospective lender) and work out the total cost of borrowing to properly judge their suitability. 

How to get a business loan for a hotel: 6 key steps

If you want to get a business loan for a hotel or alternative finance to support hotel cash flow and business expansion, here are the key steps you should take: 

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

It’s important to choose a loan that suits your specific needs. For example, if you're buying an existing hotel, a commercial mortgage might be best, while if you need quick funds for a refurb, a bridging loan could be ideal. Alternatively, if you’re borrowing for ongoing cash flow management, you may want to consider flexible working capital solutions like a line of credit, MCA or unsecured loan. Source finance solutions that align with your funding requirements..  

Step 3: Check eligibility criteria

Many lenders, particularly high street banks, have strict eligibility criteria and more rigid terms, plus you may need to provide collateral. So, be sure you meet the requirements before looking to apply. Alternative finance providers, especially digital lenders like iwoca, have fewer hurdles and focus more on your business plans, performance and profitability, with easy online applications and faster funding decisions.

Step 4: Compare different finance 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 access to finance and more flexible terms, particularly for small businesses. For example, you can expect a funding decision within 24 hours, make early repayments (without any penalties), and you only pay interest on funds you draw down.

Consider the total cost of borrowing, flexibility level, speed of funding and reputation when comparing lenders to find the best option for your needs.

Step 5: Prepare your hotel finance application

Make sure you’re prepared with the relevant information and documentation ahead of a hotel loan application. Many lenders will expect to see the following:

• A comprehensive business plan and funding purpose
• Recent financials (including bank accounts and cash flow reports)
• Details of your exit strategy (where relevant)
• Key business trading information
• Existing debt and tax liabilities

Lenders will assess these details and more to judge your creditworthiness, risk profile and viability for hotel finance. Alternative finance providers offer simpler applications and faster approvals compared to banks and traditional lenders.

Step 6: Apply and await approval

After following the previous steps, you should be ready to start an application. With high street banks, you may need to wait days, weeks or even months from application to approval, while digital lenders like iwoca can give decisions in as little as 24 hours, with successful applicants often receiving funds on the same working day.​​

Best practices for securing hotel finance

If you want to improve your chances of getting a loan and securing hotel finance, there are several best practices you can follow. Here are a few ways to boost your approval chances:

1. Clearly establish your funding requirements: Get a clear view of your financial health and scope out your key business goals and funding needs to determine the right type of loan for you. Misaligned finance solutions can mean you struggle to get approved for funding.
2. Build a compelling business plan: Lenders will want to see how you intend to use the capital alongside a clear outline of your hotel’s recent performance, future projections, growth strategy and market demand, so they can be confident in your ability to repay the loan.
3. Improve your credit rating: A higher credit score will inevitably give you a better chance of securing the type and level of funding you need, while also unlocking potentially better interest rates and loan terms. Here are some actionable tips for improving your business credit score.
4. Explore alternative lending options as well as bank loans: As mentioned, looking beyond high street banks and traditional lenders can give you access to a wide range of funding options, including those with more flexibility, without needing collateral and for businesses without great credit histories.

Choosing the right hotel finance provider

It’s important to understand that each hotel finance provider has its own terms, rates, fees, lending criteria and application/approval processes. Here’s a quick comparison of the typical things to consider when exploring hotel finance offered by high street banks and alternative lenders:

Using a Flexi-Loan to fund your hotel venture and manage cash flow

From refurbs and expansion to seasonal demand and cash flow management, iwoca’s business loans can help fund your hotel financing needs. Whether you need fast access to finance to purchase premises or key equipment or a flexible lending facility to support ongoing working capital requirements to grow operations, our flexible, unsecured business loans can help you reach your goals. 

You can borrow up to £1 million with flexible terms tailored to your business needs and cash flow. Apply online in minutes and get a funding decision within 24 hours. We focus on your business plans and trading performance rather than just your credit score, making it easier to get approved even if you don't meet traditional lending criteria. Also, you can repay the loan early, free of charge, and you only pay interest on what you use.

Find out how to apply for a business loan with iwoca and use our handy loan calculator to get an idea of your likely repayments. 

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Hotel loan FAQs

Can you 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. Getting a hotel loan as a first-time buyer requires more preparation, such as:

• Creating a compelling business plan: You’ll need a thorough plan that shows how you intend to run and improve the hotel, backed by clear financial projections​.
• Demonstrating 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, such as​:

• The 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.

What if you don't have a large deposit?

If you're unable to secure the standard deposit of 30% or more, offering additional collateral to secure a hotel loan, such as your personal home or another asset, may provide a workaround. Also, explore alternative financing options, including unsecured loans, which, while often having higher interest rates, can unlock significant sums of capital without the need for collateral. 

You can even consider equity finance to reach your funding requirements to purchase a hotel, but this means giving up a level of control over your business and a share of future profits. 

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