Business funding for hotels

A hotel is lent against as a property and a trading business at once: the lender values the building on what it earns, and lends on the strength of both. Purchases and extensions are funded with a commercial mortgage or development finance, refurbishments with a business loan and asset finance, and the quiet months with a revolving facility. Before you offer, add the deposit, the stamp duty and a year’s repayments together and test them against the hotel’s profit.

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Buying a 20-bedroom hotel

Illustrative example

A limited company buys a freehold hotel in England. The price split, the deposit, the rate and the profit are all assumptions for the illustration; a lender and a valuer set the real figures.

Purchase price
£1,500,000
Of which the property (assumed split)
£1,250,000
Of which goodwill and loose contents (assumed split)
£250,000
Deposit at an assumed 35%
£525,000
Commercial mortgage
£975,000
Monthly repayment over 20 years at an assumed 7.5%
£7,854.53
Repayments a year
£94,254.40
Stamp duty land tax on the property element
£52,000
Operating profit before interest (assumed)
£180,000
Times the profit covers the repayments
1.9
Cash needed before fees and working capital
£577,000

Stamp duty land tax on non-residential property is 0% up to £150,000, 2% from £150,001 to £250,000 and 5% above that, and it falls on the property, so the split of the price has to be a fair one. Scotland and Wales charge their own land transaction taxes. Test your own figures in the debt service cover calculator.

How a lender values a hotel

A hotel’s value comes from its trade. A valuer looks at the rooms, the room rate it achieves, the occupancy through the year, the food and drink income and the costs, and works out what a buyer would pay for that profit. If the trade falls, the value falls with it, which is why a lender reads three years of accounts before it relies on a valuation.

The lender then asks two questions. Does the profit cover the repayments with room to spare? In the example the hotel makes 1.9 times its annual repayment, and a lender sets its own minimum. And if the business failed, would the building sell for enough to repay the loan? A hotel in a town centre with planning potential for other uses answers that more easily than a remote country house.

Your own record matters as much as the building’s. A buyer with no hotel experience will be asked to bring in a manager who has it, or to put in a larger deposit.

A café worker handing a bagged pastry to a customer across the counter

Seasons, deposits and the tax on rooms

Hotels take cash in advance through deposits and prepaid bookings, then spend it on wages, laundry, food and energy. A coastal or rural hotel can earn most of its year between Easter and October and run down its cash all winter. A lender will want a monthly cash flow forecast that shows the low point, and a revolving credit facility or overdraft sized to it.

Hotel accommodation has been standard-rated for VAT at 20% since 1 April 2022. For a guest who stays continuously for more than 28 days, the reduced value rule applies from day 29, and VAT is charged only on the part of the charge that is for facilities and meals.

Edinburgh has charged a visitor levy of 5% of the accommodation cost before VAT on stays from 24 July 2026, on the first five nights of a stay. If your hotel is in an area with a levy, show the lender that your prices and forecast allow for it.

What a lender takes as security

First legal charge
A mortgage over the freehold or a long lease, registered at the Land Registry. It is the main security for a hotel purchase.
Debenture
A fixed and floating charge over the company’s other assets, including the goodwill, the contents and the bank account. What a debenture is.
Insurance
The lender is noted on the buildings and business interruption policies, so a fire or a flood repays the loan. Business insurance.
Personal guarantee
The lender asks the directors for one where the property and the business do not cover the loan on their own.

How a hotel purchase is funded

  1. 1

    Agree the price

    Get the seller’s accounts, the occupancy and room rate figures, the licences and the staff list under the transfer of undertakings rules.

  2. 2

    Find the lender

    A funding search through Swoop puts the purchase, the accounts and your experience in front of lenders who fund hotels.

  3. 3

    Valuation and legal work

    The lender instructs a valuer who reports on the trade and the building, and solicitors check title, planning and the premises licence transfer.

  4. 4

    Completion

    The mortgage is drawn, the deposit and stamp duty are paid, and the licences and registrations move to your company.

Funding for each kind of hotel project

Commercial mortgage

A commercial mortgage pays for a purchase or refinances an existing loan, over a longer term than a business loan, agreed with the lender. Commercial mortgages.

Bridging loan

A bridging loan completes a purchase before the mortgage is in place, or funds a refurbishment that must finish before a mortgage lender will lend. Bridging loans.

Development finance

Development finance pays for an extension or new bedrooms, released in stages as the building work is done. Development finance.

Asset finance

Asset finance pays for beds, kitchens, laundry equipment, a booking system or a minibus, with the equipment held as the lender’s security. Asset finance.

Your own position as the owner

A hotel bought by your company with your guarantee puts your personal assets behind the mortgage. Cover the debt with life and key person insurance, so the loan is repaid if you die or cannot run the hotel. Business protection.

When you sell, Business Asset Disposal Relief taxes qualifying gains at 18% up to a lifetime limit, which the Budget on 28 October 2026 cut from £1 million to £500,000 for disposals on or after 6 April 2027. On a hotel the gain can be large, so plan the timing with your accountant. How much tax you pay when you sell your business.

Business loan affordability calculator

Your profit against all your loan repayments, new and existing, as the cover ratio a lender works out.

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Questions people ask

How much deposit do I need to buy a hotel?

The lender decides, based on the valuation, the trading record and your experience, and there is no single figure. A buyer with a strong record of running hotels and a business with steady accounts can expect to borrow a larger share of the price than a first-time owner. Add stamp duty land tax, legal and valuation fees and working capital for the first winter to the deposit when you work out the cash you need.

Can I buy a hotel with no hotel experience?

It is possible, but a lender will ask how the risk is covered. That can mean a general manager with a record in hotels, a bigger deposit, or a business that runs under a franchise or management agreement. Show the lender a business plan with monthly forecasts and a clear account of who does what. Franchise finance covers branded hotels.

Do hotels charge VAT on rooms?

Yes. Hotel accommodation is standard-rated at 20%. Where a guest stays continuously for more than 28 days, the reduced value rule applies from the 29th day, and VAT is charged only on the part of the price that covers facilities and meals. The rules are in HM Revenue and Customs’ VAT Notice 709/3.

Can I refinance my hotel to pay for a refurbishment?

Yes, if the building’s value and the trade support a larger loan. A lender will value the hotel as it is, look at the costed schedule of works, and model the extra income the refurbished rooms will bring. Where the work has to finish before a mortgage lender will lend, a bridging loan or development finance can pay for it first. Refinancing business debt.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Funding by sector

Commercial mortgages

A commercial mortgage is a long-term loan secured on premises the business uses or a building let to tenants.

Read more →

Development finance

Development finance pays for building or refurbishing property in stages, and is repaid when the finished scheme is sold or refinanced.

Read more →

Business funding for pubs and bars

A freehold, a lease and a tie each change what a lender will fund for a pub, and the premises licence is checked first.

Read more →

Business funding for restaurants and cafes

Restaurants and cafes fund kitchens, refits, second sites and premises, and a lender reads their card takings first.

Read more →
All business funding

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Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

Cover for a personal guarantee

If a lender asks you to guarantee the company’s borrowing, our advisers can advise on life cover for that debt.

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