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Hotel Financing: Best Loan Options and How to Qualify

Hotel financing is available from banks, SBA lenders and alternative lenders, as well as direct hotel lenders.
By Randa Kriss
Last updated on September 12, 2022
Edited bySally Lauckner

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⏰ Estimated read time: 11 minutes

You can get hotel financing from a variety of sources, including lenders that specialize in lodging and hospitality. Hotel loans can be used for working capital, to buy or renovate an existing hotel, to build a new hotel or to purchase equipment, furniture and supplies.
The best hotel financing will be the most affordable small-business loan you can qualify for that meets your needs.
If you want the most competitive rates and terms: Bank and Small Business Administration loans can offer low interest rates and long repayment terms, but you’ll need to meet strict criteria to qualify. These loans will also be slow to fund. Learn more.
If you need fast access to capital: Alternative lenders can typically offer hotel financing faster than conventional bank lenders. These lenders may also have more flexible qualification requirements. Learn more.
If you want industry experience: Some lenders specialize in the hospitality industry, offering a range of hotel loans. These companies can use their expertise to guide you through the entire lifecycle of your hotel project. Learn more.
Here are banks and alternative lenders that offer hotel loans, as well as details on how to get funding.

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Hotel financing from bank and SBA lenders

Banks and SBA lenders — which are typically banks and credit unions themselves — usually offer low interest rates, long repayment terms and large business loan amounts.
To qualify, however, you’ll generally need a strong credit history, solid financials and multiple years in business. You may need to provide collateral to secure your loan. SBA and business bank loans will also have a lengthy application process and be slow to fund.
Nevertheless, businesses with strong credentials may want to consider these lenders to get hotel financing with the most competitive rates and terms.

Wells Fargo

Best for: Variety of financing options.
Wells Fargo offers commercial real estate financing up to $1 million that can be used for a variety of purposes. These loans are available with terms up to 25 years. You can choose between a purchase loan, refinance loan, equity loan or equity line of credit, depending on what type of hotel financing your business needs.
Wells Fargo business loans also include both SBA 7(a) and CDC/504 loans. You can get a 7(a) loan up to $5 million, with terms up to 25 years for commercial real estate and up to 10 years for all other purposes. For 504/CDC loans, you can get up to $10 million on the Wells Fargo portion of the loan and up to $5 million on the CDC portion. Repayment terms are up to 25 years for commercial real estate and up to 10 years for machinery or equipment.
Finally, for larger companies, Wells Fargo operates a specialized hospitality property financing division. Through this program, business owners have access to a team of experienced hospitality specialists who can provide tailored financial solutions, such as construction and bridge financing, lines of credit, recourse and non-recourse financing, among others.

Celtic Bank

Best for: Faster SBA loans
Celtic Bank is a digital bank that focuses on small-business financing and SBA loans. It is one of the largest processors of SBA 7(a) loans in the country — approving over $725 million in loan volume for the 2021 fiscal year.
Celtic Bank offers SBA CDC/504 loans — in addition to 7(a) loans — and according to its website, has 10 years of experience funding hotel acquisitions, purchases and construction. Celtic is also an SBA Preferred Lender, which helps expedite the funding process, and unlike many SBA lenders, the bank allows you to start and manage your application online.
Depending on your loan type and business credentials, you could qualify in as little as 10 minutes and once approved, receive your funds within 48 hours.
Plus, Celtic Bank offers more than just SBA financing. You can explore other hotel loan options, including equipment financing, construction financing and working capital loans.
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625

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Min. credit score

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Hotel financing from alternative lenders

Compared to banks and SBA lenders, alternative lenders usually provide quick funding, with streamlined online applications. These lenders may have looser qualification requirements, but they also tend to offer smaller loan amounts, shorter repayment terms and charge higher interest rates for financing.
If you need a hotel loan fast, you might consider these lenders.

ARF Financial

Best for: Best for borrowers with fair credit
ARF Financial is an alternative lender that provides fast business loans to hospitality companies, including hotels, motels and bed and breakfast inns. You can use a hotel loan from ARF for a range of purposes, including opening a new location, renovating or remodeling, expanding your services or offerings, and marketing or advertising your business.
Hotel financing is available in amounts up to $750,000 with terms up to 36 months. You can complete and submit the online application in about 10 minutes, and if approved, you can get access to funds in as little as three business days.
To qualify for a loan from ARF Financial, you’ll need a minimum annual revenue of $100,000 and at least one month in business. ARF does not require a minimum credit score, but its website states the lender considers a variety of criteria, including but not limited to your credit history, when making an underwriting decision.

Balboa Capital

Best for: Equipment financing
Balboa Capital is an online lender that specializes in equipment financing, offering loans of up to $500,000. Hotel financing from Balboa can be used for fixtures, beds, furniture, chairs, ice machines, security systems, smart appliances, room service tables and luggage carts.
You can apply for a loan online and receive approval in as little as one hour. If you’re approved, you can access funds within the same day.
To qualify for equipment financing from Balboa, you’ll need at least one year in business, a minimum credit score of 620 or higher and at least $100,000 in annual revenue.
Plus, if you’re interested in the speed and flexibility of this lender, Balboa also offers general hotel business loans, as well as hotel franchise financing.

Hotel financing from direct lenders

Direct hotel lenders lend their own money to business owners looking for funding. These companies specialize in the hotel and hospitality industry and offer their expertise in addition to the opportunity to access capital.
You might consider a direct hotel lender if you’re trying to finance a large project and could benefit from an expert working with you from beginning to end. Not all of these companies provide details about interest rates and qualification requirements on their websites, however, so you’ll want to be sure to clarify that information before proceeding.

Avana Capital

Best for: Customized loan structures
Avana Capital has been in business since 2002, offering specialized financing options for hospitality businesses, renewable energy companies and owner-occupied real estate projects.
Avana offers hotel construction loans, SBA CDC/504 loans, bridge loans, as well as conventional loans. Lending specialists can use their expertise in the industry to help you choose the right financing option and customize a loan offer that works with your needs.
If you need a bridge loan, for example, Avana offers interest-only payments for 12 to 36 months, closings within 10 to 30 days and pre-approval in as little as three days. The lender will also finance up to 75% of the as-complete value (the estimated value post-renovation) of the project.

Stonehill Strategic Capital

Best for: Acquisitions and refinancing existing debt
Stonehill is a direct hospitality lender that offers several different types of hotel loans, including permanent loans, bridge loans, construction loans, preferred equity loans and mezzanine loans, which consist of a combination of equity and debt. You may also be able to qualify for a specialized loan if you’re working on a renewable energy (or similar sustainability) project.
Although Stonehill may consider other use cases for its loans, many of its hotel financing options are centered on business acquisitions and refinancing. The permanent loan, for example, offers loan amounts of $5 million to $50 million for these purposes, with loan terms of five, seven or 10 years and amortization from 20 to 30 years. Interest rates are fixed at 4.5% to 6.5%.
This lender also focuses on large hotel investments — the lowest minimum loan amount available is $1 million for building sustainability improvements. For all other hotel loans, the lowest minimum amount available is $5 million.

How to qualify for a hotel loan

Like any small-business lender, hotel lenders will generally consider similar factors — your personal credit score, time in business and annual revenue — when evaluating your loan application.
When applying for hotel financing, however, lenders will likely also consider criteria that are specific to the hotel industry, such as:
Cash flow
Cash flow is the amount of money you have entering your business, minus the amount of money you have leaving your business at a specific moment in time. Positive cash flow can show that your business is financially healthy and able to pay back any potential debt.
Debt service coverage ratio
The debt service coverage ratio, or DSCR, compares your business’s cash flow to its potential debt obligations.
To calculate DSCR, you’ll need to divide your annual net operating income by the potential annual debt payments you’d make for the hotel loan in question. Some lenders require a DSCR of 1.25 — a higher ratio is better — it means you have enough money coming in to pay your existing debts.
Loan-to-value ratio
If you’re looking for a hotel loan to finance a purchase or construction project, the lender will calculate the loan-to-value ratio, or LTV. This ratio is calculated by dividing the loan amount by the value of the property you are looking to buy or renovate.
Commercial real estate lenders will typically offer loan amounts with LTVs that range from 65% to 85%, depending on the type of property and your business’s qualifications, among other criteria.
Net operating income
Net operating income is your hotel revenue minus all necessary operating expenses. This number is calculated pre-tax and doesn’t account for any debt payments, capital expenditures or depreciation.
Hotel lenders will use your net operating income to determine how efficiently your business runs.
Revenue per available room
Revenue per available room, or RevPar, is calculated by dividing the total room revenue by the rooms available. It can also be calculated by multiplying the average daily rate by the occupancy rate.
In either case, this number represents the revenue generated per available room, whether or not they are occupied. Lenders may use this industry-specific metric to evaluate the success and growth of your hotel.
Debt yield
Debt yield is your hotel’s net operating income divided by the potential loan amount. This number indicates the return a lender would see if they were to have to foreclose on your hotel from day one.
Debt yield helps lenders assess the risk of issuing a loan to your business.
Branding
Hotel lenders may consider the name of your hotel as they underwrite your loan application. If you’re operating under a well-established brand, the company’s reputation may make it easier for you to qualify for financing.
Although small or boutique hotels may not benefit from brand reputation, those businesses can look for lenders that specialize in their part of the industry instead of those that typically work with larger brands.

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