Hotel refurbishment and FF&E finance

Who can borrow and what lenders look for

What a lender looks for depends on the size of the works. For a light refurbishment funded by an additional advance, they care that the existing facility has headroom and the hotel's trade covers the slightly larger debt. For a heavy refurbishment or a PIP, they underwrite the works themselves: a costed scope, a credible contractor, a sensible programme, and the value and trade uplift the refurbishment is meant to deliver. They want to understand how the hotel keeps trading during the works, or how the closure period is funded if it cannot. A franchise-imposed PIP carries weight because it comes with a brand standard and a recognised covenant, but it also commits the operator to a defined spend on a deadline. They will also look at the borrower's track record of delivering works on budget, because a refurbishment that overruns ties up the rooms longer, deepens the trading dip and erodes the very return that justified the spend. On a heavy programme that closes part or all of the hotel, the lender treats the project much like a small development: staged drawdowns against certification, a contingency for the unexpected, and a clear plan for the trade recovery once the rooms reopen. We structure the facility around the works and the cash flow, sequence the rooms so the hotel keeps earning where it can, and evidence the return so the lender sees refurbishment as investment rather than cost. Where the works are tied to a franchise PIP, we present the franchisor's requirement and timetable, because a lender understands that a PIP protects the brand covenant that underpins the hotel's trade.

How much you can borrow

On light works funded by an additional advance, the amount is governed by the headroom in the existing loan to value and the hotel's ability to service the larger debt. On heavy works funded by a short-term facility, lenders size against the value once the works are complete, advancing a share of that improved value and releasing the funds in stages, much like a small development facility. FF&E can be funded as part of that facility, on an asset finance line secured on the equipment, or as a further advance, with the amount tied to the cost and the hotel's headroom. Because refurbishment lifts ADR and RevPAR, the works can increase the hotel's going-concern value and therefore its borrowing capacity once they bed in, which is what makes a refinance onto a term loan after the works the natural exit. The size of the facility therefore depends not just on the cost of the works but on the uplift they create: a refurbishment that moves a hotel from a tired three-star offer to a fresh, higher-rate product can lift the achievable ADR materially, and that flows through occupancy into RevPAR and into the going-concern value the eventual term loan is sized against. We work back from that improved value to set the right facility size, fund the trading dip while the rooms are out of service, and size the exit term loan on the post-works EBITDARM. We model the works, the trading gap, the post-works value and the eventual term loan together, so the refurbishment pays for itself in the structure rather than simply adding debt.

Rates and costs

Cost follows structure. An additional advance on the existing hotel facility is priced at term-loan rates, indicatively from around 7 to 10 percent, the cheapest way to fund light hotel refurbishment works where there is headroom. A short-term refurbishment bridge, a bridging loan taken specifically to fund the works, is priced per month, indicatively around 0.75 to 1.30 percent, because it is fast and temporary, and is meant to be refinanced once the works complete. FF&E asset finance carries its own rate over the life of the equipment. Expect a lender arrangement fee of around 1 to 2 percent, a valuation where heavy works are involved, legal fees, and on a bridge any exit fee. The total cost depends heavily on how long the works and the trade recovery take, so a tight programme and an early refinance keep it down. The structure decision is really a cost decision: where the existing facility has headroom, an additional advance at term-loan rates is far cheaper than a bridge, but where there is no headroom, or the hotel needs to come off its current lender, a short bridge at a monthly rate may be the only way to fund the works quickly, accepted on the basis that it is refinanced as soon as the improved trade beds in. FF&E spread over an asset finance line keeps the equipment cost off the property facility and matches the repayment to the useful life of the furniture and fittings. We disclose our broker fee in writing, compare structures on total cost over the life of the works and the recovery, and never claim an exclusive tie to any lender.

Refurbishment finance, bridging or development finance

Hotel refurbishment finance is the right product when an existing, trading hotel needs investment to stay competitive or meet a brand standard, short of building or extending the hotel. Light works lean toward an additional advance on the hotel term loan or a short bridging loan; heavy works sit closer to a small development facility, sized on the hotel's post-works value and refinanced afterwards. If the project is large enough to be a genuine build, extension or change of use, hotel development and conversion finance is the better structure. If you need to buy a hotel quickly before refurbishing it, bridging funds the purchase and the works can follow, and the refurbishment facility and the eventual term loan can be planned alongside the bridge so the whole sequence is mapped from the start. The dividing lines are not always sharp: a heavy refurbishment with significant structural work shades into development territory, while a light refresh funded on existing headroom barely needs a separate facility at all. What matters is matching the cost and the term of the money to the works it funds, so a quick refresh is not carrying long-term debt and a major reconfiguration is not stretched over a term advance it was never sized for. We match the structure to the scale of the works, so you are not paying development rates for a refresh, nor stretching a term advance over a job it cannot cover.