How lenders evaluate hotel metrics — Occupancy, ADR & RevPAR for hotel business loans

Summary: Lenders assess hotels by converting operational KPIs—occupancy, ADR (average daily rate) and RevPAR—into forward revenue and cash‑flow models to test debt service capacity and loan security. Underwriters examine historical trends, seasonality, booking mix, channel volatility and adjusted projections (post‑refurbishment, contract wins) to calculate DSCR and acceptable LTV. Presenting clean PMS/STR data, a credible booking curve and realistic forecasts materially improves your chances. Ready to compare options? Get Quote Now — Free Eligibility Check.

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What are Occupancy, ADR and RevPAR?

Short definitions every lender expects to see clearly documented.

• Occupancy rate = occupied rooms ÷ available rooms (for a given period). It shows utilisation and seasonal patterns.
• ADR (Average Daily Rate) = total room revenue ÷ rooms sold. It measures realised price per occupied room.
• RevPAR (Revenue per Available Room) = ADR × occupancy OR total room revenue ÷ total rooms available. It combines price and volume into one revenue metric.

KPI formulas + worked example (monthly)

Formula	Example (30 rooms, 20 nights sold)
Occupancy = rooms sold ÷ rooms available	20 sold ÷ (30 × 30 days) = 20 ÷ 900 = 22.2% (monthly illustrative)
ADR = room revenue ÷ rooms sold	£8,000 ÷ 20 = £400
RevPAR = ADR × occupancy	£400 × 22.2% = £88.80

Alt text suggestion for the table image: “Example calculation for hotel occupancy, ADR and RevPAR”.

Why lenders focus on these metrics

When underwriting hotel loans lenders are primarily testing two things: whether the property can generate predictable cashflow to service debt, and whether the asset or sponsor provides sufficient security.

• Occupancy, ADR and RevPAR are leading indicators of revenue performance and are quickly affected by market changes.
• Lenders convert these KPIs into projected EBITDA and free cashflow to calculate Debt Service Coverage Ratio (DSCR).
• Operational performance affects both cashflow lending decisions (working capital, term loans) and real estate lending (LTV on mortgage facilities).

How lenders evaluate each metric

Occupancy — what underwriters look for

• Trend and duration: Lenders review trailing 12–36 months and ask for seasonally adjusted trends. One busy month is not enough.
• Booking mix: A stable mix of corporate, contracted groups and direct bookings is preferred over heavy reliance on volatile OTAs or one-off tour operators.
• Volatility and downside scenarios: Underwriters stress test occupancy drops (e.g., 20–30% fall) and check covenant resilience or covenant triggers.
• Credibility of forward bookings: Advance bookings, deposit profiles and cancellation rates strengthen forecasts.

Example benchmark (indicative only): a mid‑market city hotel with stable corporate demand may show 65–75% occupancy; a coastal leisure hotel may run lower but with higher seasonality.

ADR — quality of rate matters

• Sustainability: Lenders distinguish permanent rate increases from temporary promotions or heavy discounting.
• Channel ADR variance: ADR by channel (direct vs OTA vs corporate) helps lenders estimate net yield after commissions.
• Ancillary revenue allocation: Are breakfast and extras bundled? Lenders prefer clear separation of room revenue and ancillary income to avoid over‑stating ADR.

A durable ADR uplift that is supported by improved market positioning or refurbishment carries more weight than transient spikes driven by one festival or event.

RevPAR — the single, high‑value KPI

• Benchmarking: Lenders compare RevPAR to a comp set (STR/CoStar) and national/regional trends to gauge relative performance.
• Pro‑forma adjustments: For refurbished hotels or rebranded assets, lenders accept pro‑forma RevPAR if backed by comparable achieved performance nearby.
• Projection to cashflow: Lenders apply realistic GOPPAR margins to forecast EBITDA from projected RevPAR.

Translating KPIs into lending metrics: Debt Service Coverage Ratio (DSCR) & LTV

Lenders convert RevPAR → rooms revenue → total revenue → EBITDA → cash available for debt service. From there they calculate DSCR and set LTV limits.

DSCR = Net operating income (available for debt) ÷ annual debt service. Typical lender expectations (indicative): 1.25x–1.5x depending on loan type, property risk and sponsor strength.

LTV (senior mortgage) is heavily dependent on asset type and location. Typical guidance (indicative): 60–70% LTV for stable, branded assets; lower for high‑seasonality or lower‑quality assets.

Worked example (indicative):

• Projected RevPAR: £70 → annual rooms revenue for 100‑room hotel = £70 × 365 × 100 = £2,555,000.
• Assume total hotel revenue (including F&B): £3,200,000 and GOP margin 30% → GOP = £960,000.
• After fixed charges and adjustments, cash available for debt service = £600,000.
• If annual debt service = £400,000 → DSCR = 600,000 ÷ 400,000 = 1.5x (meets many lenders’ thresholds).

Underwriters will stress this model with downside RevPAR scenarios and check covenant buffers.

Supporting metrics & qualitative factors lenders assess

Beyond the three headline KPIs, lenders require a broader picture:

• GOPPAR (Gross Operating Profit per Available Room) — ties revenue to operating efficiency.
• Booking lead time & cancellation rates — show how forward bookings will cashflow through low seasons.
• Length of stay, segment splits — business vs leisure, group bookings, corporate accounts.
• Ancillary income (F&B, conferencing, spa) and its margin contribution.
• Market supply pipeline — new hotel openings nearby dilute RevPAR forecasts and increase perceived risk.
• Management & brand — experience of operator, franchise contracts and any management agreements that affect cashflow or capex responsibilities.

Data sources lenders use include verified PMS/system exports, STR/CoStar reports, audited management accounts and independent market appraisals.

Typical documentation lenders want

Have these ready to speed decisions (loans typically start from around £10,000 and above):

• Last 2–3 years management accounts and tax computations.
• Most recent monthly management accounts and cashflow statements.
• STR or PMS export showing occupancy, ADR and RevPAR histories.
• Forward booking curve and group/corporate contracts with deposit terms.
• 12–36 month cashflow forecasts and a business plan explaining assumptions.
• Asset valuation / recent survey, capex schedule and licences.

Get Quote Now — Free Eligibility Check (the enquiry form is for matching your business to suitable lenders/brokers — it is not a loan application).

Practical tips owners can act on before applying

• Export clean PMS and STR reports showing multi‑year trends and seasonality.
• Segment revenue by channel and show net yield after commissions.
• Produce a credible booking curve (forward occupancy and ADR) with evidence — deposits, group contracts, corporate deals.
• Address near‑term capex needs or present a staged financing plan (bridge → refinance once performance improves).
• Demonstrate experienced management or bring in a proven operator to de‑risk the covenant profile.

How UK Business Loans helps

We connect hotel owners and operators to lenders and brokers who regularly underwrite hospitality assets. Our simple process:

1. Complete the short enquiry (takes under 2 minutes).
2. We match your details with lenders and brokers experienced in hospitality lending.
3. Receive quotes and contact from matched partners to discuss terms and next steps.

Get Started — Free Eligibility Check

For more information about specific hotel lending options you can view our hotels sector page on hotels business loans.

Note: Completing the enquiry form provides information to help us match you with the most appropriate lenders/brokers. It is not a loan application and has no obligation.

FAQs

What RevPAR do lenders expect for a loan?

There’s no single answer — acceptable RevPAR depends on location, asset class, and cost base. Lenders prefer consistent RevPAR in line with the comp set and a recovery trajectory if performance was impacted by one‑off events.

Can seasonal hotels still get loans?

Yes. Lenders look at multi‑year trends, forward bookings and how you manage seasonality (cash reserves, overdrafts, seasonal covenants). They may apply higher DSCR buffers for highly seasonal assets.

Will a recent drop in occupancy prevent approval?

Not always. Underwriters will want to understand cause, duration and your mitigation. Short‑term dips supported by a credible recovery plan are commonly accepted.

What evidence of ADR/occupancy should I provide?

Provide PMS exports, STR reports, group/corporate contracts, and monthly management accounts. Forward booking data and proof of deposits carry weight.

How long does the process take?

After you submit an enquiry you can often receive initial contact within hours; formal offers depend on documentation, valuation and lender due diligence and typically take weeks.

Does applying through UK Business Loans affect my credit score?

No — submitting the enquiry to be matched with lenders/brokers does not affect your credit score. Lenders may perform credit checks later if you proceed with an application.

Final CTA & compliance note

Want a free, no‑obligation eligibility check and rapid quotes from lenders and brokers who understand hospitality? Get Quote Now — Free Eligibility Check

Compliance note: UK Business Loans is an introducer. We do not lend or provide regulated financial advice. By submitting an enquiry we will share your details with selected lenders and brokers so they can contact you about relevant finance options.

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hotels business loans

1. What occupancy, ADR and RevPAR figures do lenders need to approve a hotel loan?
Lenders expect 12–36 month occupancy, ADR and RevPAR histories (preferably PMS/STR exports) showing consistent performance or a credible, evidence-backed pro‑forma uplift rather than isolated monthly spikes.

2. How do lenders convert RevPAR into lending metrics like DSCR and LTV?
Underwriters convert projected RevPAR into rooms revenue, add ancillary income, apply GOP margins to forecast cash available for debt service, then calculate DSCR and set an appropriate LTV based on asset risk.

3. Can seasonal or coastal hotels still get hotel business loans?
Yes — lenders will review multi‑year trends, forward bookings and cashflow management and often apply higher DSCR buffers or seasonal covenants for highly seasonal assets.

4. What documentation should I prepare to speed up a hotel loan application?
Provide 2–3 years’ management accounts and tax computations, recent monthly accounts, STR/PMS exports, forward booking curves and contracts with deposit terms, forecasts, valuation and capex schedules.

5. Will a recent drop in occupancy stop my loan being approved?
Not automatically — underwriters assess the cause, duration and mitigation of the dip and may accept short‑term declines if supported by credible recovery plans and evidence.

6. How long does the hotel lending process usually take from enquiry to formal offer?
Initial contact from matched lenders or brokers can come within hours via a matching service, with formal offers typically taking several weeks depending on documentation, valuation and due diligence.

7. Does submitting an enquiry through UK Business Loans affect my credit score?
No — completing the free enquiry to be matched with lenders and brokers does not affect your credit score, though lenders may run checks later if you proceed with an application.

8. What loan sizes and LTVs can I expect for hotel mortgages or refinancing?
Loan sizes vary widely from tens of thousands to multi‑millions, with typical senior mortgage LTVs of around 60–70% for stable, branded assets and lower LTVs for higher‑risk or seasonal properties.

9. How can I improve my chances of securing a hotel loan (occupancy/ADR/RevPAR advice)?
Improve prospects by presenting clean PMS/STR data, segmenting revenue by channel with net yields, supplying a verified forward booking curve and deposits, addressing near‑term capex and demonstrating experienced management or a proven operator.

10. Can I borrow to fund a refurbishment and will lenders accept pro‑forma RevPAR increases?
Yes — lenders commonly finance refurbishments and will accept pro‑forma RevPAR if it’s supported by comparable achieved performance, realistic forecasts and a staged financing or refinance plan.