Hotel Financing: Best Business Loans to Consider in 2023

To operate or run a hotel business, the owner may need a business loan for expenses such as buying land, purchasing an existing building, starting new construction, and making renovations. The options for lending may seem overwhelming, which is where this roundup comes in handy. Each company we reviewed caters to a particular need, helping make business lending less confusing and more accessible to current or prospective hotel owners.

There are several factors to consider when researching the best hotel business loan. In this review, our experts highlight the rates, fees and terms of each lender and explain what makes each lender a good option. We also share potential downsides of each lender, and provide a rating methodology you can use to select the best option for your needs.

Hotel Financing: Best Business Loan Options Overview

How to Choose the Best Hotel Financing Option

• Loan features: Loan features include terms, repayment options, and minimum amounts.
• Application process: How invasive is the loan process? Consider whether there is a hard-pull or soft-pull credit score impact. How long it will take to receive the funding? Also, look for any distinctly competitive offerings.
• Interest rates and fees: Rates and fees have an impact on the total amount of money your company will owe.
• Qualification process: What do you need in order to qualify? Each lender has its own requirements for hotel business loans including minimum credit score, annual revenue, and business history.
• Customer support: What kind of customer support does the lender offer? Consider whether you will have the option to speak with a live representative, access an online portal, or communicate via chat.
• Online user reviews: Look at independent review sites such as TrustPilot and the Better Business Bureau to make sure that the company you consider for hotel construction loans has positive user reviews.
• Perks and bonuses: Service offerings like payment flexibility, transparency in fees, and advanced technology features may be helpful when financing a hotel purchase.

How Much Does It Cost to Open a Hotel?

All values are based on average market prices. According to Hotel Tech Report, the percentages you see in the brackets show the ratio of a particular line in the project's total cost.

• Hard costs and site improvements $255,400 (76%): This category includes everything from land costs to permits, building, engineering, and landscaping. Other expenses include plumbing, finishes, parking, and site improvements.
• Soft costs $41,800 (12%): These are the skill-based fees you offer to the professionals like architects, designers, lawyers, and accountants. This category also carries the franchise application costs, land closing fees, taxes, and insurance.
• Furniture, fixtures, and equipment $29,100 (9%): This line includes the calculations for all types of furniture and fixtures, kitchen equipment, washers and dryers, technology in the meeting rooms, room cards, and other appliances.
• Pre-opening and working capital $10,700 (3%): Last but not least, you need to collect staff and make some effort to train them in advance. This line is all the funds needed for operating reserves, technical services, recruiting, and purchases.

As you can see, opening a hotel requires a large amount of initial capital. You should also consider amortization over the years, ongoing staff training, and many other current and future expenses, which will help you keep the accommodations up-to-date and avoid larger spending later down the line.

What Can You Use Hotel Loans for?

• Purchasing an existing hotel: Financing a hotel purchase allows interested investors to buy existing hotels that may be for sale. Without funding, many owners simply would not have the funds to purchase a property outright.
• Remodeling or renovations: Hotel loans give business owners the funds to remodel or renovate an existing hotel.
• Purchasing land for new build: Some hotel business loans will give the option to purchase land for owners to build a brand new hotel on. Land is expensive and so funding makes it possible to obtain it when needed.
• Constructing a new hotel: Hotel construction loans allow investors to construct a new hotel either by demolishing a former commercial building or building a brand new hotel on purchased land.
• Buying new technology for hotel: Old hotels may have systems that need to be upgraded, including security and reservation management. Hotel financing makes these updates possible.
• Hotel maintenance: Obtaining a loan for a hotel business can give borrowers adequate funds to maintain a hotel, covering expensive repairs that owners can’t afford otherwise.

How Does a Hotel Loan Work?

In the United States, the steps you need to take to apply for a hotel loan are simple.

• Complete an application form and wait for approval.
• Once the lender has approved your application, the loan money will be transferred to your business account.
• You can then use the loan money for different purposes–from establishing to improving your hotel business.
• Once your hotel business begins to gain momentum, you can start making repayments to the company. However, the loan amounts, rates, and requirements can change depending on the lender.

Common Hotel Loan Amounts

The amount of money you can borrow for a hotel loan varies from lender to lender. In the majority of cases, the lender will make decisions according to your current cash flow, the size of your hotel, the purpose of the loan, the number of years your hotel has been in operation, and more. Small hotels may be loaned $100,000 to $1 million, while more established hotel businesses may get financing as large as $50 million.

Hotel Financing Rates

Like the loanable amount, financing rates will vary according to your application and the lender. Expect interest rates to be around 6.5% to 12%. If you wish to apply for a hotel loan from a bank, the financing rate they offer could be lower. However, there may be harsher lending criteria. If you need a quicker and easier approval, you may wish to borrow from private lenders. If you do so, you will likely be required to pay higher interest rates.

How to Qualify for Hotel Financing?

When looking at financing a hotel purchase there are several companies to choose from. Each company has unique lending options, suited for everyone from existing owners to startups. While lenders have their own unique qualifications they consider, most will include the following factors:

• Credit score of business: Is your credit score high enough to qualify?
• Time in business: Have you been in business long enough to qualify?
• Annual revenue: Do you have the minimum amount of annual revenue to qualify?

Once you’ve determined you’re eligible enough to potentially qualify, most applications can be completed online or over the phone. If applying online, a customer representative may contact the interested applicant to go through the application and determine the next steps. Typically further documentation will be required. After the applicant is approved, funding will enter the borrowers’ bank account within a few days to a few weeks or longer.

Other Types of Hotel Financing

The hotel business is changing. Not every hotel business owner operates a traditional hotel or franchise. To find a loan that fits your unique situation, consider these options:

Bed and Breakfast Business Loans

Bed and breakfast loans include working capital loans, business lines of credit, and short-term loans. Consider options that fit your credit and business history. Pay attention to fee structures–some loans have origination and borrowing fees that will add to your debt.

Airbnb Loans

Depending on your needs, you might choose to finance an Airbnb or VRBO business with working capital, term, or business loans. You might also look at lines of credit for short-term expenses. Keep in mind that loan amounts and terms vary widely.

Conclusion

Hotel owners, either current or hopeful, need hotel loans to run their business. Whether it's purchasing land, renovating an existing hotel, constructing a new hotel, paying for maintenance, or upgrading systems, hotel ownership costs a lot of money. Luckily, some lenders are willing to help. While the process to apply can be daunting, the lenders we reviewed make it a top priority to help their customers obtain good hotel financing rates and terms. Do your homework to decide which lender fits the needs of your business best.

*The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.