Last reviewed on 9th December 2021
The hospitality sector took a huge hit due to the Covid-19 pandemic. That being said, it’s also presented an opportunity for those wishing to buy hotels at a reduced rate. Furthermore, commercial lenders will still consider mortgages for hotels if the proposal is viable.
Our experts specialise in commercial mortgages for hotels. Whether you want to purchase an existing hotel or you require finance to refurbish and convert a building into a hotel, we can help. There are many different mortgages and financial products available to suit your plans.
Our advisors specialise in commercial finance and can help you with your hotel mortgage from start to finish.
How can I get a mortgage for a hotel business?
Commercial lenders will approve your application based on its credibility. Various factors will also affect your chances of getting a mortgage, which include:
- Is the hotel already a running business?
- Does the hotel need extensive refurbishment?
- Number of years the hotel has been trading
- Amount of employed staff
- Is your lender suitable for this project?
- Does the loan meet your requirements or is there a shortfall?
You’ll need to ensure your lender understands your plans once you become a hotelier. For instance, will you be taking over the building, or will you be spending part of the loan on improvements? Depending on your goals, certain lenders will be more suitable. Applying with a lender that isn’t suitable will result in a declined application, so you’ll need to plan ahead.
What do I need to apply for a hotel mortgage?
Each lender that works in the commercial sector will vary in what they’ll require before approving hotel finance. The lenders available will also depend on whether you’re purchasing an existing hotel business or building a hotel from scratch.
That being said, many lenders will require applicants to have the following:
- Business plan
- Experience in running a hotel business
- Hotel KPI (when buying an existing hotel)
- Income projection and trading accounts where possible
- Minimum 30% deposit
- Good credit score
- Ability to offer security
Every lender will want to see solid proof that your proposition is viable. To do this, you must demonstrate the viability of your business and this will ultimately come from the documents you provide.
In addition, you’ll also need a good credit score and a 30% minimum deposit. Any less than this and you’ll struggle to find a lender. Being able to offer security will also help your application.
Having a good business plan
You’ll need an in-depth business plan before applying for hotel finance. This is because lenders need to assess whether your plan is realistic and if projections meet the loan requirements.
Although lenders will be able to assess past revenues with existing businesses, they’ll still need an indication of future plans. Lenders may also adjust their LTV ratios depending on the solidarity of your business plan.
Experience in the hospitality sector
Experience in running a hotel would be preferred, but having experience in the hospitality sector is a must. The greater the experience you have, the stronger your application becomes.
Lenders carry out their assessments to establish the amount of risk involved with your loan. You can greatly minimise a lender’s concerns by having a great deal of experience with hotel businesses. In contrast, having little experience will make it very difficult for you to get approved.
Having qualifications such as degrees in hospitality or hotel management can also help your application.
Hotel key performance indicators
If you’re buying an existing hotel, lenders will want to see the hotel’s key performance indicators (KPI). As with any business, a KPI will give an indication of the hotel’s performance.
Lenders will require details of the occupancy rates and revenues. They’ll then calculate the revenues per available room (RevPAR) and the average daily rates (ADR) to establish how well the hotel is performing.
If your figures are below average, lenders will want to see how you plan on raising revenue to an at least average level.
Income projection and trading accounts
If you’re buying an existing business, lenders prefer to see at least two years’ accounts. If you don’t yet have two years’ accounts, some specialist lenders may still consider you.
The key here is to demonstrate that your hotel will generate enough profit to repay the loan. Improving the profitability of a business should also be part of your business plan, especially if your figures fall short.
The location of your hotel will be a key factor in how successful your business can be. Buying a hotel that’s in close proximity to city centres, retail parks, entertainment centres, office buildings and other commercial buildings will give your application a huge boost. Furthermore, having transport and access links will also support your proposal.
If you’re buying in a derelict area, then lenders will question your application. Unless the hotel has a brilliant track record, you could otherwise struggle to be approved. Selling a hotel also becomes a lot easier when located in a prime location as opposed to somewhere that’s less desirable. This is another reason why lenders may become hesitant.
How can I get the best mortgage rates for my hotel?
The rates you’re offered will be based on the strength of your application. For instance, having experience in this sector in addition to having a credible business plan should give you access to the best rates possible.
Lenders will base their assessment around risk. For instance, applicants with vast experience will be considered lower risk than those who are buying their first hotel. Furthermore, business plans with stronger evidence of income will also help to unlock better mortgage rates.
Our experts can assess your application and give you areas on where you can make improvements, if necessary. Doing so can ensure your proposal is at its best, which can unlock better rates than you otherwise wouldn’t have access to.
Which type of finance should I use to buy a hotel?
There are a number of finance options available when buying a hotel. Buying a hotel is possible with the following forms of finance:
- Commercial mortgage
- Asset finance
- Development finance
- Refurbishment finance
- Business loan
- Bridging loan
Asset finance can also be a suitable option to purchase a hotel. This is especially true if your hotel requires additional furniture rather than a refurbishment. Using asset finance is also suitable for buying equipment such as computers and other office equipment.
If your hotel doesn’t require much equipment, but would benefit from a renovation, then refurbishment or development finance could be better suited.
Depending on your circumstances, it may be possible to purchase a hotel with a commercial mortgage. That being said, if you only require a small amount of capital, a business loan may be more suitable. This is quite common for purchasing existing hotel businesses.
If you’re building a hotel business from scratch, you may benefit from development finance. This would include funds for the build and internal refurbishment of the project. Funds are released in stages which can be advantageous. This is because you’re only charged interest on each part of the loan as its released. Furthermore, lenders will assess whether each development stage passes their criteria.
If you already have a building that you simply want to renovate, refurbishment finance could be a better option.
Bridging loans can also be suitable for purchasing a hotel, especially if you need to meet tight deadlines such as buying at an auction. Nonetheless, you’d need an exit strategy so you’d eventually need a more sustainable type of long-term finance, such as a commercial mortgage.
A bridging loan is a type of short-term finance, with terms rarely exceeding three years. The good news is that bridging can be approved very fast when compared to other methods of borrowing.
Specialist advice for hotel finance
Buying a hotel is completely different from purchasing any other building. The process can be overwhelming for many as the assessment is extremely intricate. As discussed, lenders will delve into your business plan as well as the current or projected revenue of the business.
While you may think one type of finance is suitable, we may be able to find a more suitable product. This is because a hotel business can be purchased using more than one type of finance. Our experts will then liaise with lenders on your behalf to ensure that they’re satisfied with what you’ve provided. If lenders do have any concerns, we can then provide the documents required to get the loan approved.
Trying to purchase a hotel by directly going to a lender can be extremely difficult. If you are refused for any given reason, it can have a negative impact on applying for finance in the future. This is why speaking to an expert beforehand can be so crucial.
You can make an enquiry to get a more in-depth idea of what’s required for your individual situation. Our experts will then guide you further on whether or not your proposition is viable before approaching lenders.