What is hotel finance

What is hotel finance?

Hotel finance is the commercial lending used to buy, build, convert or refinance a hotel. A hotel is not a passive property: it is a trading business that sells rooms, food, drink, events and other services every night. That is why hotel finance is sized on how the business trades, not only on what the building would fetch empty. A lender looks at the hotel's earnings, its location, its operator and its brand or independence before deciding how much to advance and at what rate.

This is a guide to funding a hotel as a business. It is not about guests paying to stay. If you are buying, developing, converting or refinancing a hotel, read on. We arrange the finance and introduce you to the lenders that understand hospitality.

The distinction from ordinary commercial property lending matters. A warehouse or a shop earns rent from a tenant, and the lender looks largely at the lease and the building. A hotel earns its income directly from thousands of individual guest transactions a year, so its value rises and falls with how well it is run. That trading dimension is the whole reason hotel finance is a specialism: the same building can support very different loans depending on whether it is full and well priced or half empty and discounting. Lenders that understand this price for the operational story as much as the property, which is why a generalist bank often struggles where a hospitality lender is comfortable.

How hotel finance works

A hotel lender starts with trading performance. The headline measures are occupancy, the proportion of available rooms sold, and ADR, the average daily rate achieved per occupied room. Multiplying the two gives RevPAR, revenue per available room, the single most watched performance number in the sector. From total revenue the lender works down to operating profit, then to EBITDARM, the standard hotel profit measure that lenders size debt against because it strips out financing, rent and head-office choices so different hotels can be compared on a like-for-like basis.

The lender then applies a loan to value, or LTV, against the going-concern valuation, and tests that the trading profit comfortably covers the loan repayments. On a stabilised, well-trading hotel an acquisition or term commercial mortgage commonly reaches up to around 65 to 70% LTV, which means a deposit of roughly 30 to 35%. Pricing is indicative and varies by lender, but term debt is often around 7 to 10% per annum or a margin over the Bank of England base rate or SONIA.

In practice a lender normalises the hotel's accounts before lending. That means adjusting for one-off items, owner's drawings, non-market salaries and any unusual costs or income, to arrive at a maintainable, sustainable level of profit rather than a flattering or depressed single year. A buyer's projections are tested against the trailing twelve months and against the local market, because a lender will not simply accept an optimistic forecast. The clearer and cleaner the trading history, the easier the lender's job and the better the terms, which is one reason well-kept management accounts are worth as much as a tidy building when it comes to raising finance.

The main types of hotel finance

Hospitality borrowers usually meet five broad product families. Most deals use one or a combination of them, and we match the structure to where the hotel is in its life: stable and trading, mid-project, or being repositioned.

Across the market the three broad categories of finance you will hear about are debt, equity and a blend such as mezzanine. Most hotel deals are debt-led, with the owner's equity forming the deposit and the lender providing the senior loan. Arrangement fees are commonly around 1 to 2% of the loan, on top of valuation and legal costs, and a monitoring-surveyor fee where development is involved.

What lenders look at

• Trading performance: occupancy, ADR, RevPAR and the trend over three years
• EBITDARM and how comfortably it covers the proposed loan
• The going-concern valuation and the gap to bricks-and-mortar value
• The operator's experience and the management team behind the hotel
• Whether the hotel is branded or independent, freehold or leasehold
• Location, market segment and the outlook for the local demand

An experienced operator with a strong, well-located hotel and consistent RevPAR will secure higher leverage and keener pricing than a first-time buyer taking on a tired, underperforming asset. We position both to the lenders that suit them.

Tenure and structure weigh heavily too. Freehold gives the lender lasting security and is generally preferred; a leasehold hotel is assessed on the length and strength of the lease, and a short or weak lease limits both the loan and the lenders willing to consider it. Where a hotel is held in an OpCo PropCo structure, with the operating company separated from the property company, the lender looks at both sides and at the lease between them. These structural points often decide which lender is the right home for a deal.

Freehold and leasehold hotels

Most hotel finance is written against freehold property, because the lender can take a first charge over an asset it can ultimately sell. Leasehold hotels are financeable but more constrained: the lender needs comfort that the lease runs well beyond the loan term, that the rent is sustainable against trading, and that the terms allow the business to be assigned or the security enforced. A leasehold hotel typically borrows at a lower loan to value and from a narrower pool of lenders, and the value rests on the lease as much as the trade. We flag tenure early because it shapes every other term.

• Freehold: strongest security, widest lender choice, highest leverage
• Long leasehold: financeable where the lease comfortably outruns the loan
• Short or weak leasehold: limited lenders, lower LTV, careful structuring
• OpCo PropCo: both companies and the inter-company lease assessed together

Who lends on hotels

Hotel finance comes from a mix of high-street banks for the strongest covenants, challenger and specialist banks, and short-term and development lenders for project work. Specialist lenders are comfortable with the trading nature of a hotel and price for it. Because the market is fragmented and appetite shifts, using an arranger who knows which lender is active on a given profile saves time and usually improves terms. The wider context is supportive: Savills reported UK hotel investment of around 3.01 billion pounds year to date in 2025, and Christie and Co reported a record 6.6 billion pounds in 2024.

As an arranger we sit between you and that fragmented market. We package the trading story, the valuation evidence and your experience into a credit case, then take it to the lenders most likely to back it on the best terms, rather than to whichever bank you happen to use. Because we see many hotel deals, we know which lender is currently lending on, say, a leasehold seaside hotel, a London conversion or a regional independent, and we steer the case there. That saves wasted applications, protects your time and usually moves both the loan amount and the rate in your favour.

How long are hotel loans

A term hotel mortgage typically runs 15 to 25 years, in line with other commercial property lending, which keeps the monthly cost serviceable from trading profit. Short-term products are far shorter: bridging usually sits at up to 12 to 18 months, and development or conversion finance at 18 to 36 months, after which the borrower refinances onto a term mortgage once the hotel is stabilised and trading. There is no single rule that fixes hotel loan length; it follows the purpose and the trading profile.

A note on regulation

Lending to a hotel operator or trading business is unregulated commercial lending and falls outside the Financial Conduct Authority mortgage perimeter. Where a case is a regulated owner-occupier mortgage, for example a small owner-run guest house occupied as a home, we refer it to an authorised firm. We act as an arranger and introducer and do not lend. All figures here are indicative and never an offer of credit.