Securing A Commercial Mortgage For A Hotel

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The hotel industry in the UK is going strong, with lenders keen to back would-be borrowers for both purchases and refinances. The market is a popular career choice, both long-term and as a method of ‘changing pace’ or taking on a new venture during formal retirement.

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Key Criteria Points

There are numerous key factors in securing funding for hotels. Whether purchasing a new business, refinancing or refurbishing a property, commercial mortgage lenders are keen to support borrowers in the sector.

Client Experience

Experience in the hotel, or hospitality industry is preferred, although being a relative newcomer doesn’t mean a commercial mortgage is out of the question. If you’re looking to move into the industry with no experience, the lender is more likely to look kindly on an application involving a strong hotel.

Where there is no experience in running hotels, experience in running a business, acting as a manager or even providing strong customer care will strengthen your application.

Historical Performance Of The Hotel

Where you are financing a hotel that is already trading, the lender will want to see the financial accounts, ideally covering the last two years.

If the hotel is running well and has strong occupancy rates, demand can easily be demonstrated. Without demand for the product, there will be no profit, which will clearly not help your commercial mortgage application.

Hotel Reputation

Lenders are keen to lend to businesses with a strong reputation. If a hotel is suffering from numerous negative online reviews, the lender will want to understand how this is to be resolved.

Where there is a change of management and staff will not be retained, clarity around the staff changes and how the reputation will be repaired are key. Turning around a hotel that is failing to treat its guests well is a strong win for commercial mortgage applications.

Where you’re expecting to turn around a hotel with previously poor customer service, experience of where you have managed a similar situation will put the lender at ease.


The lender will assess the trading performance using the latest two years accounts for the business. They will check the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) to check the affordability of the loan.

EBITDA shows the trading position of the business without certain accounting practices and costs being taken into account. This allows them to understand the true profitability of the business, and its ability to support the loan repayments.

Changes To The Business

When buying a business, or raising capital to put back into moving the business forward, past financial performance may mean little when predicting future income. As such, if you’re making changes to the business and expect financial performance to improve as a result, your lender may be willing to accept these when assessing the application.

This is true whether you’re projecting an improvement to the financial performance, or customer satisfaction and reputation.

Changing Management Structures

A change in management structure can result in eradication of problems around the reputation of the business very quickly. In addition, where previous management structures were either very expensive, or not running the hotel to it’s full potential, there is scope for improvements in profit overnight.

As such, details of any change in the management structure of the business should be laid out upfront, as it is a key point in your purchase of a hotel.


Refurbishment of the hotel can also produce a dramatic change in revenue. Firstly, the cost of the works and your ability to fund that, along with any impact on capacity must be taken into account.

In addition, where there is a big change in the standard, aesthetic or type of hotel, this may impact on the trading performance.

Marketing Strategies

Some hotels rely on repeat trade and their marketing has been practically non-existent for a number of years. Those hotels won’t be reaching their capacity in a world of online hotel booking. Large changes to marketing strategies – either how bookings are generated, or the addition of special events and private functions will be considered by the lender.

If you’re planning to make major changes to a hotel of this nature, where affordability may be tight, some lenders will allow you to use projections. Projections are designed to supplement the current financial accounting figures, showing both the expected position going forward.

Finance Terms

Commercial mortgages for hotels are usually often based on the ‘going concern value’. This means that both the property and business value can be considered by the lender. We can usually fund up to 65% of the going concern value, or 75% of the property value, depending on your application.

Some lenders will allow you to take out your application on a capital repayment, or interest only basis, and most will offer both fixed and variable rates. In addition, we can usually offer:

  • Interest rates from 2.25%
  • Loans from £50,000 with no maximum loan size
  • Lending terms of up to 25 years (some lenders will restrict borrowing to 15 years)

Timescales & Application Details

Commercial mortgages usually take 6 – 8 weeks, depending on the transaction. The main delays are usually caused by failure to provide all the required information to the lender upfront.

To ensure your application runs as quickly as possible, you should always endeavour to provide the following:

  • 6 months’ personal bank statements
  • Projections (where projections are being used in conjunction with a business plan).
  • 2 years’ accounts
  • 6 months’ business bank statements (for refinance applications)
  • CV of the borrowers
  • Business plan (where future changes are planned)

Lender’s View

With the hotel industry continuing to benefit from strong demand, lenders are keen to support the industry. Whether you’re looking to purchase a booming hotel, buy a fixer upper, or start-up a new, or currently closed hotel, we have lenders for you.


About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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