Hotel property sits in an awkward lending category — it is simultaneously real estate and a trading business, and most lenders are built to assess one or the other. The building has bricks-and-mortar value that a commercial property lender can underwrite. The business has trading income that a commercial mortgage lender wants to see. Getting both right in the same application, from a lender with appetite for hospitality, is the whole exercise.
The market for hotel finance is smaller and more specialist than for standard commercial property, and the lenders who serve it actively are a specific subset of the commercial lending market.
How Lenders Assess Hotel Security
Hotel valuations use two methodologies, and which one applies depends on the size and nature of the hotel.
Bricks and mortar valuation — used for smaller hotels and bed-and-breakfasts where the property has meaningful residential or alternative use value. Lenders comfortable with this approach treat the hotel more like a commercial property than a trading business.
Trading or investment valuation — used for larger or purpose-built hotels where the value is primarily derived from the business’s income. The valuation is based on a multiple of EBITDA or net operating income, adjusted for the property’s fixtures, equipment and brand position. This is the methodology most specialist hotel lenders use, and it requires current and historic trading accounts, occupancy data, average daily rate and RevPAR figures.
The distinction matters because a hotel valued on trading income is only as valuable as the business performing. A hotel going through a difficult trading period, or purchased with the intention of repositioning, will value lower — sometimes significantly lower — than the same building valued as a going concern in good health.
Finance Routes for Hotel Property
Commercial Mortgage
The long-term debt solution for operating hotels. Specialist commercial lenders and some challenger banks have dedicated hospitality loan books, with criteria centred on the hotel’s trading performance rather than its bricks-and-mortar value.
Typical requirements include two to three years of hotel accounts, evidence of stable or improving occupancy, and an interest coverage ratio from the hotel’s net operating income. Loan-to-values typically range from 55–70% of the investment value.
Owner-operators purchasing their first hotel, or buyers with limited hospitality track record, face a narrower lender field than experienced operators. Our commercial mortgages page covers the wider commercial lending market.
Bridging Finance
Short-term lending used for hotel acquisitions where a commercial mortgage cannot complete in the required timeframe — auction purchases, competitive tender situations, or chain breaks where a long-term loan is being arranged simultaneously.
Bridging is also used where the hotel is not yet trading at the level needed to support a commercial mortgage — a recently acquired hotel being repositioned, a property being refurbished or extended, or a new hotel being established. Our commercial bridging finance page covers how these facilities work against commercial and hospitality security.
Development Finance
For new-build hotel development, conversion of existing buildings to hotel use, or significant extension and refurbishment projects. Hotel development carries additional complexity compared with residential development: the end asset is a trading business rather than a saleable unit, and the GDV is dependent on achieving trading projections that are inherently uncertain at construction stage. Our development finance pillar covers development facilities in detail.
Refurbishment Finance
Staged facilities for hotels undergoing significant works while partially or fully closed. The lending is structured around current value and planned works, with tranches released as refurbishment milestones are reached. Our bridging refurbishment finance page covers staged facility structures.
The Trading Track Record Problem
The single most common obstacle in hotel finance is a trading gap — a property that was a hotel but has been closed, converted to other use, or has insufficient track record for lenders to underwrite against.
A hotel with two years of stable accounts, improving occupancy and a professional management team is a fundable proposition for multiple specialist lenders. A hotel that has been closed for refurbishment, has recently changed ownership, or is in the first year of trading presents a lending challenge that requires either bridging finance to the point where trading stabilises, or a lender who takes a view on projected rather than historic performance.
Projected trading support — a feasibility study from a specialist hospitality consultant, comparable trading data from similar properties in the area, or a franchise agreement with a branded hotel operator — can significantly improve a lender’s comfort with limited trading history.
What Lenders Want to See
For an established operating hotel: three years of accounts, a monthly management account for the current year, occupancy statistics and average daily rate by month, a list of fixtures and equipment included in the purchase, any franchise or management agreements in place, and a summary of any planned changes to the operation.
For a hotel acquisition with repositioning plans: the above where available, plus a business plan covering your repositioning strategy, capital expenditure budget, projected trading assumptions, evidence of operator experience, and a clear plan for the initial trading period.
Frequently Asked Questions
What loan-to-value can I expect on a hotel mortgage?
Between 55% and 70% of the investment value in most cases, depending on the lender, the hotel’s size, trading performance and location. Bridging facilities against hotel security typically range from 60–70% LTV.
Can I get hotel finance without trading accounts?
For a commercial mortgage, most lenders require at least one to two years of trading history. For bridging finance, trading accounts are less critical — the lending is assessed on security value and exit plan rather than trading performance. This makes bridging the typical route for hotel acquisitions where the business is being established or repositioned.
Is VAT an issue on hotel purchases?
Hotels are often opted for VAT purposes, which means the purchase price is subject to VAT unless the transaction qualifies as a Transfer of a Going Concern. TOGC treatment removes the VAT liability but requires specific conditions to be met. This is a solicitor and accountant question rather than a lending one, but it affects the cash required at completion.
Can I borrow against a hotel I am going to close for refurbishment?
Via bridging finance yes, though the loan-to-value will reflect the closed hotel’s bricks-and-mortar or alternative use value rather than its trading value. This is often lower than the purchase price, which means a meaningful equity contribution is required.
Hotel finance requires lenders who understand hospitality, and most of the specialist hotel lenders do not take direct applications. You can see the full range of commercial facilities we arrange on our commercial property finance pillar and our homepage, or contact our team to discuss a specific hotel property.