Hotels Business Loans: What Factors Affect Interest Rates & Pricing?

Quick summary & what you’ll learn

Summary: Two hotels with similar turnover can pay very different interest margins — sometimes 1%–3% or more — depending on loan type, loan‑to‑value (LTV), borrower track record, property location and condition, revenue stability (RevPAR/EBITDA), lender type and wider market rates. This page explains the specific factors hotel owners should expect lenders to assess, the common fee components, and practical steps to lower your borrowing cost.

Need a fast, no‑obligation price check? Complete a Free Eligibility Check and we’ll match you with lenders and brokers who specialise in hotels: Get Quote Now.

Quick checklist: documents lenders will want

• Last 2–3 years audited or management accounts (company level)
• Management accounts and recent trading packs (YTD P&L and balance sheet)
• Occupancy and RevPAR history (monthly or quarterly for last 12–36 months)
• Business plan & 3‑year cashflow forecast (including sensitivity / seasonality)
• Details of existing debt, leases and management/brand/franchise agreements
• Property details: address, title documents, valuations (if available)
• Information on owners/directors: CVs, credit background, relevant hospitality experience

Top-level factors that affect hotel loan interest rates

Loan type & term

Different product types carry different pricing because lenders price by risk and duration. Typical types include:

• Commercial mortgage (term loan) — usually lower margins for established hotels on long terms (10–25 years).
• Development or construction loans — higher margins and shorter draws; interest/reserve risk during build/refurbishment.
• Bridging finance — short-term, fast but expensive (higher rates and fees).
• Asset or equipment finance — priced against depreciating assets rather than property value.

Longer terms often mean slightly higher margins for lenders to cover long-run risk, but increase affordability for borrowers because of lower monthly repayments.

Loan‑to‑value (LTV) & security

LTV is one of the single biggest price drivers. Lower LTV = lower perceived lender risk = tighter margin. As a guideline:

Borrower credit & experience

Lenders assess the strength of the borrowing entity and its owners. A proven operator with multiple successful hotel projects and strong personal/commercial credit will usually attract better pricing and more flexible covenants. New operators, or those with recent defaults, will face higher margins and stricter security (personal guarantees, lower LTV).

Property characteristics (location, class, condition)

Location matters: city centre corporate hotels in strong demand locations typically get better rates than remote or highly seasonal resorts. Property class (brand/franchise, star rating), age, and condition also matter — a hotel requiring major capital works or with unclear title will be priced more expensively.

Income & cashflow (RevPAR, EBITDA, seasonality)

Lenders look at EBITDA and RevPAR trends, not just turnover. Consistent occupancy, high average daily rate (ADR) and diversified revenue streams (F&B, conferencing) lower perceived risk. Highly seasonal hotels or properties with low margins will attract higher margins and tighter covenants.

Market & macroeconomic conditions

Bank base rate, gilt yields and inflation set the base cost for lenders. When central rates rise or credit markets tighten, all margins move up. Expect lender spreads to be adjusted for the macro environment.

Lender type & relationship

High‑street banks, challenger banks, specialist hotel lenders, private debt funds and alternative finance providers each price differently. Specialist lenders often understand hotel metrics and can price competitively despite higher base costs. Existing relationships and track record with a lender can reduce margin through negotiated terms.

Hotel‑specific pricing drivers

Seasonality and revenue volatility

Hotels with extreme seasonal swings (e.g., summer-only seaside resorts) are seen as higher risk. Lenders may apply higher margins, require cash reserves, or impose stricter covenants (minimum occupancy or debt service coverage ratios).

Proximity to demand drivers (airports, events)

Hotels near airports, business districts, tourist hubs or major event venues benefit from diversified demand and therefore better pricing. Local competition and pipeline upgrades (new hotels opening) will be considered.

Asset condition & refurbishment scope

A hotel needing substantial capex will usually attract a development or refurbishment facility with higher costs until works are completed and trading improves. Lenders price draw risk and cost-overrun risk into margins.

Management contracts & franchise agreements

Brand affiliation can be a plus or a minus. A strong franchise/brand with long-term management agreements can lower risk, but restrictive contracts that limit owner control or add costs may affect covenant tests and pricing.

How pricing is quoted and extra costs to expect

Rate types: fixed vs variable and margins

Lenders quote a headline rate made up of a reference rate (e.g., Bank Rate, SONIA) + a margin (expressed in basis points). Fixed‑rate terms are available for portions of the loan but often at higher initial cost. Variable rates move with the reference rate.

Arrangement fees & other costs

• Arrangement / booking fees (typically 0.5%–2% of facility)
• Valuation, legal and due diligence costs (can be several thousand pounds)
• Broker fees (if engaged separately)
• Exit or early repayment fees (break fees for fixed‑rate periods)

Covenants, margin ratchets & performance pricing

Lenders often use covenants (minimum DSCR, interest cover, occupancy thresholds). Some facilities include margin ratchets: if performance improves (higher RevPAR or lower LTV), the margin can reduce. Conversely, breaches can lead to higher margins or penalties.

Ways to improve your rate / get a better price

• Lower your LTV: increase deposit or inject equity; refinance after paying down debt.
• Show stronger cashflow: provide clear RevPAR, ADR and EBITDA data and robust forecasts with seasonality stress tests.
• Refurbish intelligently: small targeted works that boost ADR can improve valuation and pricing; full redevelopment may need specialist lenders.
• Use specialist brokers: brokers who know hotel metrics can present your case better to the right lender.
• Negotiate covenants: agree realistic covenant levels and include flexibility for seasonal businesses.

Want help improving your position before you approach lenders? Start with a Free Eligibility Check and we’ll match you with brokers and lenders who know hospitality finance.

How UK Business Loans helps you compare rates quickly

We’re an introducer that matches hotel owners with lenders and brokers who specialise in hospitality finance. Complete a short enquiry and we’ll share your brief with selected partners who can provide tailored, no‑obligation quotes. Many lenders respond within hours — full offers require valuation and checks.

Compliance & important disclosures

UK Business Loans introduces enquiries to third‑party lenders and brokers. We are not a lender and we do not provide regulated financial advice. Submitting an enquiry is free and not an application — it allows us to match your business with suitable providers. All lending decisions are made by lenders and are subject to their eligibility, affordability checks and terms.

We typically work with loans and facilities from £10,000 and upwards. We do not place sole trader‑only products or professional loans aimed exclusively at regulated professions.

FAQs

Next steps — Ready to compare?

Complete a short, no‑obligation enquiry now and we’ll match your hotel with lenders and brokers who specialise in hospitality finance. It’s free and usually takes less than 2 minutes: Free Eligibility Check — Get Quote Now.

Related reading: learn more about tailored finance for hospitality on our hotels industry page: hotels business loans.

UK Business Loans acts as a lead introducer — we do not lend and we do not provide regulated financial advice. Offers are provided by third parties and are subject to eligibility and credit checks.

1. What determines interest rates on hotel business loans?
– Interest rates for hotel business loans are set by loan type and term, LTV/security, borrower credit and hospitality experience, property location and condition, income metrics (RevPAR/EBITDA) and wider market rates.

2. What loan‑to‑value (LTV) can I expect for a hotel mortgage?
– Typical LTVs for hotel mortgages range from around 50%–65% with mainstream lenders and can reach 70%–75% with specialist hotel lenders in strong locations, while development lending is usually more conservative.

3. How can I lower the interest rate on a hotel loan?
– You can usually improve your rate by reducing LTV (injecting equity), demonstrating stronger RevPAR/EBITDA and forecasts, using a specialist broker, negotiating covenants and completing value‑adding refurbishments.

4. What documents will lenders want for a hotel loan application?
– Lenders typically require 2–3 years of audited or management accounts, recent trading packs (YTD P&L), occupancy/RevPAR history, a 3‑year business plan and cashflow forecast, property title/valuation details and owner CVs/credit information.

5. How quickly can I get indicative hotel loan quotes via UK Business Loans?
– After completing our short enquiry, many specialist lenders and brokers respond with indicative quotes within hours, while formal offers take longer pending valuation and due diligence.

6. Will submitting an enquiry with UK Business Loans affect my credit score?
– No — submitting an enquiry is not a formal loan application and won’t affect your credit score, although lenders may carry out credit checks if you proceed to a formal application.

7. Do I need a specialist broker to secure the best hotel finance?
– While not mandatory, specialist hotel brokers often present hospitality metrics (RevPAR, ADR, seasonality) more effectively to lenders and can improve access to competitive pricing, and UK Business Loans can match you to those specialists.

8. What extra fees should I expect besides the headline interest rate?
– Expect arrangement/booking fees (commonly 0.5%–2%), valuation, legal and due diligence costs, possible broker fees and exit or break fees on fixed‑rate periods.

9. Can highly seasonal or volatile hotels still get funding?
– Yes — seasonal or volatile hotels can obtain finance, but lenders typically apply higher margins, stricter covenants (DSCR, reserves) and lower LTVs unless you can demonstrate robust forecasts and mitigation plans.

10. Is refinancing a viable option to reduce costs on a hotel mortgage?
– Refinancing is often a viable way to reduce costs if you’ve improved trading, lowered LTV or strengthened covenants, but expect a new valuation, affordability checks and potential fees during the process.