How much can you borrow for a hotel

It is not a salary multiple

A common starting point is to ask how much you can borrow against your income, the way a homebuyer would. Hotel borrowing does not work that way. A hotel is a commercial trading business, so a lender lends against the hotel's own value and the profit it produces. Your personal wealth and experience matter, but mainly as evidence that you can run the asset and stand behind it, not as a multiple of salary. The two questions that set your borrowing are the loan to value, or LTV, the lender will allow, and whether the trading profit covers the loan.

This guide is about borrowing to buy or refinance a hotel as a business. If you are an owner-occupier of a small guest house used as your home, that may be a regulated case, which we refer to an authorised firm.

How much: the LTV bands

LTV is the loan as a percentage of the hotel's going-concern value. The stronger and more stable the hotel, the higher the LTV a lender will offer. These bands are indicative and vary by lender and by the strength of the deal.

On a typical stabilised acquisition, planning for a deposit of 30 to 35% is sensible. On top of the deposit you need arrangement fees of around 1 to 2% of the loan, valuation and legal costs, stamp duty land tax, and working capital for the early months of ownership.

The affordability test that caps the loan

Even where the LTV would allow a large loan, the amount is capped by affordability. The lender takes the hotel's EBITDARM, the trading profit before interest, tax, depreciation, amortisation, rent and management fees, and checks that it covers the loan repayments with headroom. That headroom is the debt service cover ratio. If a hotel does not produce enough profit to service the loan comfortably, the loan is reduced until it does, regardless of the value. This is why two hotels of the same price can support very different loans.

The cover the lender requires is not fixed. A stable, year-round city hotel with diverse demand may be accepted on tighter cover than a highly seasonal coastal hotel whose income is concentrated in a few months. Lenders also stress-test: they check that the loan still services if interest rates rise or if trade softens, so a deal that only just works at today's rate will be cut back. This is why two hotels at the same price and the same headline profit can support different loans, one judged resilient and one judged fragile.

A worked example

Take a regional hotel valued on a going-concern basis at 2,000,000 pounds, trading steadily. At 65% LTV the value cap on the loan is 1,300,000 pounds, leaving a 700,000 pound deposit. The lender then checks that the hotel's EBITDARM covers the repayments at that loan size with the required cover. If trading is strong, the loan stands at 1,300,000 pounds. If trading is thinner, the lender might cap the loan at, say, 1,100,000 pounds on affordability, raising the deposit needed. The figures are illustrative, not an offer.

Now change one variable. Suppose the same hotel carries a recognised brand and three years of rising RevPAR. A lender might stretch to 70% LTV, lifting the value cap to 1,400,000 pounds, and accept tighter cover because the income looks secure, so the affordability cap no longer bites. The deposit falls to 600,000 pounds. Conversely, if the hotel is seasonal and the accounts show a single strong year after two weak ones, the lender may treat maintainable profit as lower, cut the loan on affordability and ask for 45% equity. The building has not changed; the trading story has.

What lifts or lowers your borrowing

• Lifts it: consistent or rising RevPAR, a recognised brand or franchise, freehold tenure, experienced operator, prime or resilient location
• Lowers it: declining trade, short or weak leasehold, a closed or seasonal hotel, first-time operator, or a niche location with thin demand
• Equity quality: clean, verifiable deposit funds and a sensible working-capital buffer
• Refinance or remortgage: releasing equity is possible where value and trading have grown, but the same LTV and cover limits apply

We test a deal against several lenders before applying, because appetite differs sharply by profile. The right introduction often moves both the LTV and the rate in your favour.

Two further points decide the final number. First, the valuation: the loan is sized against the lender's own valuer's figure, not the asking price, so if the valuation comes in below the price you either find more deposit or renegotiate. Second, the structure of the purchase: buying the shares of the company that owns the hotel, rather than the assets, can change the tax and the lender's appetite, and a clean asset purchase is often simpler to fund. We work both through before you commit so there are no surprises at offer stage.

What you can do to borrow more

If the loan a lender will offer falls short of what you need, there are legitimate levers, each with a cost or condition. The most reliable is simply to evidence stronger, cleaner trading, because both the value cap and the affordability cap improve when maintainable profit rises. Beyond that, a brand affiliation, an experienced co-investor or manager, or additional security can all lift the offer.

1. Strengthen the trading evidence with clean management accounts and a credible plan.
2. Add a recognised brand or an experienced operator to reduce the lender's risk.
3. Offer additional security, such as a charge over another property you own.
4. Use mezzanine finance to top up the senior loan, accepting a higher blended cost.
5. Phase capital expenditure so the day-one loan sizes against current value, then refinance as value grows.

None of these is free. Mezzanine and cross-charges raise cost and risk, so the right answer is sometimes to buy a smaller or cheaper hotel rather than to stretch the gearing. We model the trade-off so the decision is informed.

Costs to budget alongside the loan