Hotel bridging loan:trading, closed and repositioning deals
A hotel bridging loan is short-term finance secured on a hotel or guest house that lets you buy, refurbish or reposition it quickly, then repay from a hotel term loan once trading is proven, a sale, or a conversion exit. We arrange hotel bridging finance for operators, investors and developers through a wide range of bridging lenders, from specialist lenders to private credit funds.
Hotels are trading assets. Their value depends on the business run inside the building as much as on the bricks and mortar, which is why fewer bridging lenders lend on them, LTVs are lower and the questions go well beyond a standard commercial valuation. Below we set out how lenders look at hotels and how to present a deal they can support.
Key takeaways
Hotels are valued on the profits method, with closed and alternative use values used as downside tests.
LTV on a hotel bridge is lower than the 70% to 75% common on standard commercial property.
Lenders want trading accounts, occupancy and room rate data, and evidence of operator experience.
Seasonality often makes retained or rolled up interest more practical than serviced interest.
If you or close family will live in an owner's flat, the loan may be regulated and we introduce it to a directly authorised firm.
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How do lenders value a hotel?
Hotels are valued by specialist RICS valuers using the profits method. The valuer estimates the fair maintainable trade a reasonably efficient operator could achieve, then capitalises it to arrive at a market value that includes the building, the fixtures and the goodwill. Lenders then look at the downside figures alongside it.
Value
What it represents
How lenders use it
Market value as a going concern
Building, fixtures and trade, on the profits method
Headline value for a trading hotel
Value with trade closed
Value assuming the business has stopped, without trading records or inventory
Downside test; often caps the loan
Alternative use value
Value for residential, HMO, student or other use, where realistic
Supports the exit, especially for closed hotels
Value after refurbishment
Projected value once works and repositioning are done
Exit assessment only, not the day-one loan
The gap between going-concern value and closed value is the lender's measure of trading risk. The wider it is, the more cautious the LTV.
What LTV can a hotel bridging loan reach?
Expect a hotel bridging loan to run at a lower LTV than standard commercial property, where 70% to 75% on a first charge is common. Lenders reduce LTV on hotels because income can fall quickly, value depends on the operator and the pool of buyers is narrower. Terms tend to be better where:
the hotel has several years of consistent trading accounts;
the operator has a hotel track record;
the location has year-round demand rather than a short season;
the closed or alternative use value is close to the going-concern value.
Additional security over another property can bridge a funding gap. See our commercial bridging LTV guide for how gross and net loans are calculated.
What trading evidence will lenders ask for?
Because the business drives the value, lenders look at it closely. Have these ready before you apply:
Accounts: usually the last two or three years, plus current management accounts.
Trading metrics: occupancy, average daily rate and revenue per available room, by month to show seasonality.
Revenue mix: rooms, food and beverage, weddings and events, and how bookings arrive.
Operator experience: your hotel background or the management team you will put in place.
Brand or franchise agreements: terms, fees and any change-of-ownership rules.
Staff: numbers and contracts, since employees typically transfer under TUPE on a going-concern purchase.
A business plan with a realistic trading forecast and capital expenditure budget helps the lender, and later the term lender, understand where value will come from.
Have a deal in front of you?Send us the property and the numbers. We will tell you quickly whether it is fundable.
Licensing, fire safety, planning and seasonality
Hotels carry regulatory requirements that a lender's solicitor will check:
Premises licence: needed to sell alcohol under the Licensing Act 2003, with a designated premises supervisor named. Licences can usually be transferred to a new operator.
Fire safety: a current fire risk assessment, alarm and escape provision appropriate for sleeping accommodation.
Food hygiene: the food hygiene rating and kitchen condition, which can affect trade.
Planning: hotels sit in Use Class C1. Changing to apartments, an HMO or student accommodation needs planning permission, and C1 is outside Class MA.
Seasonality shapes the structure. A coastal or rural hotel may earn most of its income in a few months, so retained or rolled up interest is often more practical than serviced interest. Plan the term so your exit does not depend on refinancing in the quietest part of the year.
Common hotel bridging deals and exits
Deal
Why bridge
Typical exit
Buying a trading hotel as a going concern
Seller's timetable is faster than a term lender's process
Hotel term loan once you have trading under your ownership
Buying a closed or failing hotel
Term lenders want trading accounts, which do not exist
Refinance once reopened and trading, or sale
Refurbishment and repositioning
Upgrade rooms or change brand to lift room rates
Term loan on improved trading, or sale
Conversion to apartments or other use
Purchase ahead of planning and development finance
Guest houses with owner's accommodation: regulated or not?
Many guest houses and small hotels include an owner's flat or rooms. Bridging secured on a hotel held for business or investment purposes is unregulated, and we arrange it directly. If you or an immediate family member live, or will live, in the owner's accommodation, the loan may be a regulated mortgage contract, depending on how much of the property is your home. We introduce every case like that to a firm directly authorised by the Financial Conduct Authority, as we are not directly authorised ourselves.
A manager's flat occupied by an unrelated employee does not change the position.
Can you get a loan for a hotel business, and what does it cost?
Yes. Hotel businesses can borrow through hotel term loans from banks and specialist lenders, asset finance for equipment, and bridging where speed or a lack of trading history rules term finance out. Our page on business bridging loans covers the owner-operator angle.
A hotel bridging loan is priced per month, and hotels typically price above standard commercial property because of trading risk. Budget for an arrangement fee of typically around 1% to 2% of the loan, monthly interest, a specialist valuation fee (usually higher than a standard commercial valuation), legal fees and, with some lenders, an exit fee. Compare total costs with the bridging cost calculator and check pricing conditions on our rates page.
For longer-term finance on this type of property, see our sister site Hotel Property Finance.
Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
It depends on the monthly rate, the term and the fees. As an illustration, an arrangement fee of 1% to 2% on £200,000 is £2,000 to £4,000, plus monthly interest for each month the loan runs, a specialist hotel valuation, legal fees and any exit fee. Hotels usually price above standard commercial property, so model the total with our bridging cost calculator.
What does Martin Lewis say about bridging loans?
We cannot speak for any commentator. Our view is simple: bridging is expensive short-term borrowing, suited to a specific task with a clear plan to repay and unsuited to long-term needs. For a hotel, that means a defined purpose, such as buying a closed hotel to reopen, and an exit that a term lender or buyer will support.
Can I get a loan for a hotel business?
Yes. Options include hotel term loans from banks and specialist lenders, asset finance for equipment and bridging finance. Term lenders generally want trading accounts and operator experience. Where those are missing, such as a closed hotel or a new operator, a hotel bridging loan can fund the purchase while you build the trading record a term lender needs.
What are the downsides of a bridging loan?
Bridging costs more per month than a term loan, fees are charged upfront or added to the loan, and the full balance is due at the end of the term. For hotels, a poor season or slower refurbishment can delay the exit, which adds interest and may bring extension fees or default interest. Allow a realistic term with headroom.
Can I bridge a closed hotel?
Yes. Closed hotels are a common bridging case because term lenders want trading history. The lender values the property on a closed or alternative use basis, lends a lower percentage and focuses on your plan to reopen, sell or convert, including the refurbishment budget and the operator who will run it.
