Hotel Loans

Are you dreaming of owning your own hotel, but all you need is the financing? Or maybe you’ve been running a hotel for years, but your property needs a serious face-lift? Whatever your needs, the right funding is fundamental to success in the hospitality industry.

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Confused by all the types of hotel loans out there? mCashAdvance has got you covered with our full guide to hotel loans. Discover the right loan for your hotel today!

What are Hotel Loans?

Hotel loans are a category of financial products aimed at helping businesses in the hospitality industry. These loans vary in size and structure, with different products designed for smaller hotel businesses versus large corporate hotel chains. Not sure what type of hotel loan is right for your business? You’ve come to the right place. Explore different types of hotel loans, discover the top hospitality lenders, and learn the industry’s terms so you can make an informed decision.

Common Types of Hotel Financing

There are so many options out there for hotel financing; it can seem overwhelming at first to find the right one for your business. We’ve broken down the most common types of hotel funding so you can easily weigh the pros and cons of each.

  • Standard Hotel Loans– These are classic loans with a fixed loan term and interest rate. You make monthly payments to your lender to cover a portion of the loan principal and some of the accumulated interest. This is one of the most common types of hotel financing, generally used for hotel improvements, such as renovations, hiring extra staff, or hospitality equipment financing.
  • Mezzanine Financing– This type of hotel financing blends debt and equity. This means lenders will give you both a loan you will repay with interest as well as money in exchange for shares in your hotel. More flexible than traditional loans, mezzanine lenders will usually offer more capital than banks, but at a higher interest rate. This is a good option for hotels with existing good cash flow looking to expand.
  • Hotel Bridging Loans– These loans help hotel owners bridge the cash gap between acquiring a new asset for the hotel (usually a new building or property) and getting more permanent financing (such as a mortgage) to invest further in it. 
  • Permanent Loans– This type of loan is for hotel owners building their hotel from the ground up. It works as a hotel construction loan in the beginning and converts into a mortgage once the building is complete. This saves you from having to apply and qualify for two separate loans, often from different lenders with different lending criteria. 
  • Preferred Equity– Lenders extend credit to hotel owners in exchange for preferred shares of their hotel. Preferred shareholders have a higher level of priority than common shareholders, should the hotel go bankrupt. This type of hotel loan is generally granted as a further cash boost in addition to a traditional loan. 
  • SBA Hotel Financing– These government-backed loans for small businesses guarantee a large percentage of the loan for the lender if the hotel owner defaults. This significantly decreases the risk, making interest rates much lower and more affordable. However, these loans can be challenging to qualify for, especially if your hotel is experiencing financial hardships. 

General Hotel Lending Guidelines

Hotel lending guidelines and eligibility criteria can vary greatly depending on your lender. Banks and lenders offering government-backed loans will typically require a higher business credit score and more documentation. In contrast, a private non-bank lender may not require as much paperwork. Most lenders will ask for some type of collateral as security, but this may depend on your hotel loan size. State requirements may also influence hotel loan underwriting guidelines, so be sure to check your state guidelines.

What Can You Use A Hotel Loan For?

You can use hotel loans to fund nearly anything you need to grow your business:

  • Financing a hotel purchase
  • Refinancing your hotel
  • Refinancing to get cash out of the property
  • Building a new hotel
  • Remodeling
  • Relocating
  • Adding new hospitality services
  • Financing new hospitality equipment
  • Covering operational expenses
  • Hiring more employees

Where can I get hotel financing?

Both banks and private lenders offer hotel motel loans. Banks usually offer longer repayment periods and lower interest rates, but the application process can be time-consuming, paperwork-heavy, and have high credit score requirements. In addition, it can take weeks to receive approval and even longer to get money funded into your business account.

Private non-bank lenders generally offer faster service, with fewer documentation requirements and quicker turnaround times. However, they usually offer shorter repayment periods with steeper interest rates, which can be hard to afford.

How Do Hotel Loans Work?

  1. Fill out an application form and receive a lending decision
  2. After approval, find the money in your business account
  3. Start using your hotel loan to make your hotel shine
  4. As guests flock to your hotel, make repayments to your lender

How Much Can I Borrow With A Hotel Loan?

The amount you can borrow with a hotel loan will vary with different lenders. Most lenders will assess the size of your hotel, the number of years of operation, your current cash flow, the purpose of the loan, and other factors to determine how much they will lend. Smaller hotels can expect to borrow from $100,000 to a maximum of $1 million, while larger hotel chains can get financing up to $50 million.

What Are The Hotel Financing Rates?

Hotel loan interest rates will vary greatly depending on your lender and your application, but you can generally expect to see rates from 6.5% to 12%. Banks tend to offer lower hotel financing rates with stricter lending criteria. Private lenders usually offer slightly higher rates, but it can be easier to get approved.

What Types Of Properties Qualify For Business Loans For Hotels?

Hotel Business Loans are available for most kinds of hospitality properties, including:

  • Hotels
  • Motels
  • Inns
  • Guesthouses
  • Extended Stay Hotels
  • Business Hotels
  • Serviced Apartments

Some lenders will also grant hotel business loans to

  • Resorts
  • Bed and Breakfasts
  • RV Parks

However, other lenders consider these properties separate from hotels and ask owners to apply for commercial loans rather than hotel loans.

Find The Best Payment Processing For Hotel

hotel business payment processing

Typically, credit card processing companies for small business charge hotels transaction fees between 2% to 4.5%, and this eats into a hotel’s profit. Some hotels pass on these fees to their guests but this is a bad practice as it affects customer loyalty. Payment processing through mCashAdvance is different. There are no fees for our payment processing services. By taking advantage of our zero-fee payment processing service, hotels can instantly increase their profit margins. It’s easy to switch, once approved, you’ll have your new zero fee processing service up and running within 48 hours.

Learn More

Hotel Loan FAQ’s

What is the maximum time a bank would lend to a hotel?

Banks usually offer traditional hotel loans over 20 to 30 years. However, the length of your loan period depends a lot on the amount of money you are looking to borrow and the purpose of your hotel loan application.

Do I need to guarantee my hotel loan personally?

Not necessarily. Whether you are personally responsible for repaying your hotel loan depends on whether you take out a recourse or non-recourse loan. Recourse loans are similar to secured loans, so if your hotel goes bankrupt, you are still personally responsible for repaying the loan. The lender can pursue you to collect the debt. Non-recourse loans are “unsecured,” so if the hotel fails, you are not personally liable for the debt, and the lender must absorb the remaining loan balance as a loss.

Why is it so hard to get a hotel business loan?

Hotels are generally a seasonal business, so they tend to not have a stable cash flow throughout the year. Traditionally rigid and inflexible lenders see this as a negative on a business loan application and may not approve hotels for hospitality financing. However, lenders who specialize in hotel loans understand the industry’s nature and may have a higher approval rate for hotel financing.

Can I get a tax deduction for a hotel business loan?

Yes! If you use your hotel business loan to finance new hospitality equipment, you can utilize the Section 179 Tax Deduction benefit to reduce your taxes. This deduction allows businesses both large and small to deduct the full purchase or financing price of qualifying business equipment from their gross income, so they pay less tax. The Section 179 Tax Deduction is a government incentive for businesses to invest in themselves.

Hotel Loans: In Conclusion

At mCashAdvance, we believe that financing should never stand in the way of pursuing your dreams. Whether you want to build your hotel from the ground up and require startup loans or you are re imagining your hospitality services, we hope our guide has given you the tools to navigate the world of hotel business loans confidently.

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