Can I refinance to fund a hotel refurbishment while improving cash flow?
Quick answer
Yes — refinancing can release equity or restructure debt to fund a hotel refurbishment and, if structured correctly, improve short-term monthly cash flow. The right solution depends on your asset value, loan-to-value (LTV), trading performance (occupancy, ADR, RevPAR), intended works, and whether you need staged drawdowns or short-term bridging. Read on for practical options, costs, lender requirements and example approaches.
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Why hotel owners refinance
Hotel owners refinance for a mix of strategic and operational reasons. Common objectives include:
- Raising capital to fund a refurbishment or fit-out without using operating cash.
- Reducing monthly repayments by extending loan term or switching rate type.
- Consolidating expensive short-term borrowing (e.g. merchant cash advances, overdrafts).
- Accessing staged funding tied to refurbishment milestones.
- Temporarily switching to interest-only repayments during works to ease cashflow.
- Financing energy efficiency or compliance upgrades that increase long-term profitability.
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Refinance options for hotels
Commercial mortgage refinance / remortgage
Replacing an existing mortgage to release equity. Suitable for established hotels with strong valuations. Typical sizes: £100k to several million. Terms: 5–25 years. Indicative costs depend on lender and LTV.
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Development / refurbishment mortgage (staged drawdown)
Funds are released as work completes and inspected. Best for larger renovations where payments are staged against certified milestones. Typical: £100k upwards; drawdown schedule agreed with lender.
Bridging loans
Short-term solution (weeks–12 months) to bridge funding until longer-term finance completes or until trading improves. Cheaper if repaid quickly; higher rates and arrangement fees apply.
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You receive a free quote along with complimentary expert financial advice.
It’s fast and free to get a quote from one of the UK’s leading finance brokers / lenders who will contact you directly with your quote/s.
Term loans / business loans (secured or unsecured)
Useful for moderate refurbishments when security or stronger covenants aren’t feasible. Secured term loans will offer better rates but require property or asset security.
Asset refinance / sale & leaseback
Release value from fixtures, equipment or vehicles via sale & leaseback to free capital for works while retaining use of assets.
Invoice finance & working capital facilities
Improves liquidity during quieter months or while refurbishment is underway. Not a direct refurbishment fund but helps cashflow.
Green / sustainability loans
If your works include energy-saving measures (solar, insulation, efficient boilers), specialised lenders may offer preferential terms or grants.
Indicative rates and fees vary widely by lender and business profile — the ranges above are illustrative only and subject to lender checks.
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Can refinancing also improve cash flow?
Yes, refinancing can improve monthly cash flow through a few mechanisms:
- Release equity: borrow against increased property value to pay for renovations instead of using operating cash.
- Extend term: stretch repayments over a longer period to reduce monthly instalments.
- Interest-only periods: temporary interest-only payments during refurbishment reduce near-term outgoings.
- Debt consolidation: replace costly short-term debt with a lower-cost long-term facility.
Risk note: extending term or taking extra borrowing may increase total interest paid and raise leverage — model scenarios to check effect on covenants and exit strategy.
Illustrative numeric example (illustrative only): you release £500,000 equity and refinance a remaining mortgage to a 20-year term. Monthly repayments can fall materially compared to a 10-year balance, improving monthly cashflow — but total interest over the life of the loan will usually rise.
What lenders and brokers will look for
Lenders underwriting hotel refinance and refurbishment projects typically assess:
- Property value and LTV (often RICS valuation required).
- Trading performance: occupancy, ADR (average daily rate), RevPAR, seasonality and recent management accounts.
- Operator experience and management strength.
- Security position: existing charges, cross-default risk, personal guarantees.
- Refurbishment plan: budget, contractor quotes, timescales and contingency.
- Planning, licences and building condition surveys.
- Cashflow forecasts that show uplift from the refurbishment.
Practical checklist to prepare before you approach lenders:
- Two to three years’ statutory accounts + latest management accounts.
- Recent occupancy and ADR data; RevPAR trends.
- Refurbishment schedule, contractor quotes and QS report if available.
- Projected revenue uplift and sensitivity (pessimistic, central, optimistic).
- Title deeds, lease copies (if leasehold) and any existing loan agreements.
If standard lenders decline, specialist hospitality lenders and brokers often consider cases others won’t — a good broker can open those doors.
Costs, timeline and documentation
Typical costs to budget for:
- Valuation and RICS survey
- Legal fees for refinance and deeds
- Arrangement and underwriting fees
- Broker fees (if applicable)
- Early repayment charges on existing loans
Typical timeline:
Our Business Finance Matching Process
Step 1
Complete Your Details
It takes just 1 minute on average to complete your business and contact details.
Step 2
We Match Your Business
With the best business finance broker or lender most suitable for your needs.
Step 3
You Get Free Quote + Advice
You receive a free quote along with complimentary expert financial advice.
It’s fast and free to get a quote from one of the UK’s leading finance brokers / lenders who will contact you directly with your quote/s.
- Simple remortgage: 2–4 weeks (valuation, offer, legal completion).
- Refurbishment mortgage or staged facility: 6–12+ weeks (detailed due diligence, QS, drawdown conditions).
- Bridging: often faster but requires exit plan for longer-term funding.
Key documents: accounts, management accounts, refurbishment plan and contractor quotes, title documentation, licences, cashflow forecasts and any existing loan paperwork. Speak to your accountant about tax, VAT and capital allowances on refurb works.
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Common pitfalls & how to avoid them
- Under-estimating total works cost — keep a robust contingency (typically 10–20%).
- Ignoring covenant triggers in new or existing loans — model covenant impact before signing.
- Choosing a single large advance when staged drawdowns would reduce interest on unused funds.
- Not checking contractor payment schedules or retention clauses — align lender drawdowns with contractor milestones.
- Failing to model worst-case trading scenarios — lenders will stress-test you, so do it first.
Mitigation: use an independent QS, involve a broker early, and insist on staged facilities where appropriate.
Example scenarios
Scenario A — Established coastal 40-room hotel
A 40-room coastal hotel with healthy historic trading needs £350k for guestroom and F&B upgrades. Approach: remortgage to release equity and extend term from 15 to 25 years; part of proceeds ring-fenced for refurbishment. Result: reduced monthly mortgage payments and funded works without drawing on operating cash.
Scenario B — City hotel facing seasonal cashflow dip
A small city hotel with strong long-term prospects faces a seasonal lull. Approach: short-term bridging of £150k to cover refurbishment and maintain payroll, plus invoice finance to smooth receivables. Once uplift in trading is proven post-refurb, a development mortgage replaces the bridge at lower cost.
How UK Business Loans helps
UK Business Loans connects hotel owners with lenders and brokers who specialise in hospitality refinance and refurbishment finance. Complete our short, no-obligation enquiry and we’ll match you to finance partners who understand hotel lending — quick responses often within hours.
Important: UK Business Loans is an introducer. We do not lend money or provide regulated financial advice. Your enquiry is just information used to match you with suitable lenders or brokers and will not itself affect your credit score.
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For more sector-specific guidance see our hotels business loans page.
FAQ
- Can I release equity on a hotel I occupy and operate?
- Yes — owner-occupied hotels are commonly refinanced to release equity, but lenders will consider valuation, trading, leasehold/ freehold status and covenants.
- Will refinancing affect existing loan covenants?
- Possibly. Refinancing can replace or introduce covenants; read terms and get legal advice to understand triggers and reporting requirements.
- How long does commercial refinancing typically take?
- 2–4 weeks for straightforward remortgages; 6–12+ weeks for complex refurbishment facilities or staged drawdowns.
- Can I get interest-only payments during refurbishment?
- Some lenders allow temporary interest-only periods, often tied to evidence of works and a clear repayment/exit plan.
- What if my business has limited trading history or credit issues?
- Specialist lenders and brokers may consider asset-backed or alternative structures. A broker can present the best-case case to niche lenders.
- Are sustainability upgrades eligible for special funding?
- Yes — green or energy-efficiency projects can attract dedicated loans or better pricing from lenders focused on sustainability.
1. Can I refinance to fund a hotel refurbishment and improve cash flow? — Yes, refinancing can release equity or restructure debt to fund refurbishments and lower monthly repayments, subject to LTV, trading performance and lender terms.
2. What refinance and business loan options suit hotels? — Common options include commercial remortgages, development/refurbishment mortgages with staged drawdowns, short-term bridging, secured/unsecured term loans, asset finance, invoice finance and green loans.
3. How long does a hotel refinance or business loan take? — Simple commercial remortgages can complete in 2–4 weeks while more complex refurbishment or staged facilities typically take 6–12+ weeks depending on valuation, surveys and legal work.
4. What do lenders and brokers look for when assessing hotel refinance applications? — Lenders assess property value/LTV, trading performance (occupancy, ADR, RevPAR), operator experience, refurbishment plans, licences/title, cashflow forecasts and existing security/covenants.
5. Will submitting an enquiry with UK Business Loans affect my credit score? — No — the short eligibility enquiry is not an application and will not affect your credit score; it simply helps us match you to suitable lenders and brokers.
6. How much can I borrow for a hotel refurbishment or business loan in the UK? — Loan sizes vary by facility and lender but typically range from around £10,000 up to several million pounds depending on asset value and trading strength.
7. Can refinancing really improve short-term cash flow during works? — Yes — by extending loan terms, arranging temporary interest‑only periods, consolidating expensive short-term debt or releasing equity you can reduce monthly outgoings, though total interest and leverage may increase.
8. What fees and costs should I budget for when refinancing a hotel? — Expect valuation/RICS fees, legal costs, arrangement and underwriting fees, potential broker fees and any early repayment charges on existing loans.
9. Can businesses with limited trading history or imperfect credit get hotel finance? — Yes — specialist lenders and brokers often consider alternative or asset‑backed structures for cases with limited accounts or poor credit, so broker introductions can be valuable.
10. Are sustainability or energy-efficiency upgrades eligible for special funding? — Yes — green or sustainability projects (solar, insulation, efficient boilers, etc.) can attract dedicated green loans, preferential terms or grant support from lenders focused on sustainability.