Hotel funding

There are almost 10,000 hotels in the UK, and they generated revenues of more than £13.5billion in 2022.

Even with the pandemic, the industry has managed average growth every year since 2017 and forecasts for the future reveal this trend is not a blip. 

However, with success comes rising expectations. Customers want increasing value for their money, which puts hotels in fierce competition to expand, renew and innovate to catch their share of a growing market. Unfortunately, such strategies don’t come cheap. Buying hotels, building new, or engaging in extensive refurbishments is expensive, and in an industry where margins are under constant pressure, paying for long-term investment with short-term working capital can be an issue. Fortunately, there’s a solution to this dilemma: Hotel owners can stay ahead of their competitors without putting strain on cashflow by using hotel loans and mortgages to pay for upgrades, acquire new properties, or cover seasonal low points. Read on to discover more about these types of funding and how to put your hotel’s financial problems comfortably to bed.

What is hotel funding?

Hotel funding comes in a variety of shapes and sizes, and it can be used to refinance a current hotel loan, renovate your hotel building, acquire an existing hotel, build a new hotel, or cover seasonal quiet spots that create a cashflow squeeze. These loans are often tailored to fit the unique financial circumstances of the hotel industry, and in many cases, the property or acquired assets work as security and there is no need to provide additional collateral. This means hotel owners and companies that have weak credit or have been previously turned down for funding may still be able to obtain the financing their business needs to grow.

What types of funding are available for hotels?

Common types of hotel funding:

Hotel loans

  • Commercial mortgage: These are long-term loans that you use to buy an existing hotel or to build a new one. Borrow up to 90% of the purchase price, with the property providing security for the loan. Repay the loan over 1 – 25 years.
  • Development loan: May be used to pay for new construction or re-development of existing hotels. Pay for extensions, major repairs, car parking space, retrofitting, refurbishment, etc. The property acts as security for the loan. 
  • Asset Finance: These are larger loans used to buy vehicles or big-ticket hotel items such as commercial kitchens, HVAC upgrades, or swimming pool machinery. Make money from the asset as you pay for it – over a period of 1 to 5 years. The asset acts as security for the loan.
  • Merchant Cash Advance: Short-term borrowing to cover everyday expenses, such as wages, small repairs, and utility bills. Nearly all hotels take credit and debit card payments from customers. Lenders provide funding as a percentage of your daily, weekly or monthly card turnover. You repay the loan as card receipts are released from the bank. As your card sales rise, you can borrow more. Usually, no added security is required.
  • Invoice Finance: Do you take corporate guests who pay on account? Don’t wait for them to settle their bill. Unlock the value of your unpaid B2B invoices immediately. Funds are lent against the value of the hotel’s accounts receivable, and you repay as your corporate clients pay you. Unlike factoring, you retain control of your sales ledger and clients do need not know you are borrowing against your invoices. Usually, no added security is required.
  • Franchise Finance: Loans to start a new hotel franchise business or to expand an existing one. May require added security.
  • VAT loans: Funds to help hotels pay their VAT bill and to avoid penalties from HMRC. May require added security.
  • Revolving Credit Facility: Much like a bank overdraft. The borrower can dip into an open credit facility as and when funds are needed. The borrowing is repaid from incoming receipts. May require added security.

Funding from family offices

A ‘family office’ is an investment vehicle favoured by wealthy families who use the office to invest in various types of venture. Obtaining hotel funding from these sources will typically require the right introduction and a first-class presentation to attract the investor’s attention. As with all private investment, securing the funds you need from a family office can be a slow process, but if you are successful, an initial investment may turn into an extended period of financial support.

Crowdfunding

Also known as ‘peer to peer’ investment, crowdfunding relies on the power of the internet and the support of small investors and donors to deliver the funding a hotel project needs. Project owners seeking funds will post a presentation on a crowdfunding website and encourage viewers to support their cause. Supporters will usually provide investments or donations in small amounts in return for a reward, such as a free weekend break, or a discount off hotel amenities, with many investors needed to achieve the target sum. This kind of funding is essentially a gift, with the project owner not required to repay the investment as long as they use the funds according to their business plan and presentation. Crowdfunding can be used for many purposes, but it will usually score well if it is heavily promoted with existing contacts and on social media, and it proposes something original – such as the launch of an eco-friendly hotel that is 100% sustainable. Additionally, crowdfunding bids are time-sensitive. If the project fails to reach its funding target by the end of the donation period, any funds that have been pledged are usually returned to the investors.

Government grants

Most government grants for the UK hotel industry are now closed to new applicants, although it may still be possible to secure business rates relief. For entrepreneurs seeking to launch a new hotel, a Startup Loan may give them the seed cash they need to get a new hotel off the ground. Loans of up to £25,000 are available, with no added security required.

Things to consider when seeking funding for a hotel

The hotel industry is highly dynamic, with the gap between winners and losers forever widening. This elevates the risks involved with hotel funding and it means every lender will have their own approval criteria. This may affect the documentation they request. However, most hotel funding applications will require:

  • The last 2 – 3 years business accounts, including balance sheet and cashflow analysis.
  • For new-builds and refurbishments – full development plans, permits, construction schedule, projected revenues supported by recent evidence.
  • Bank statements covering the past 3 – 6 months.
  • Proof of address and identity of borrower.
  • Business plan – as detailed as possible.
  • Leasehold agreement for your existing hotel or the hotel you are buying.

The lender will also conduct standard credit and security checks. 

Top tip: Check your personal and business credit scores before you apply. Errors on your report could impact limit your ability to secure the hotel loan you need.

How to apply for hotel funding

Hotel funding is a niche area, with differing rules of application. Hotel owners seeking this type of financing may find themselves forever searching and making applications to lender after lender. The delays this can create could cause you to lose business and leave your hotel vulnerable to the competition. Instead, working with a broker, who can access hotel finance and mortgages from a wide range of lenders is a better way to go. No more cold calls and endless demands for information. Simply tell us what you need and leave the rest to us.

Get started with Swoop

Check in with Swoop to find the best rates, the best terms and the best hotel finance and mortgages all under one roof. 

Testimonials

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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