Hotel Financing &
Hospitality Loans That Close.

How Hotel Financing Works: Loans for Buying, Refinancing and Renovating Hotels

Hotels are underwritten differently from every other commercial property. Here is how lenders look at a hotel loan, which capital source fits which deal, and what to expect on rates, leverage and timing.

Why hotel loans are underwritten differently

An apartment building has leases. A hotel re-rents every room every night. Lenders treat a hotel as an operating business that happens to own real estate, so the underwriting looks at the business first: trailing-12-month revenue, occupancy, average daily rate (ADR) and revenue per available room (RevPAR) against the property's competitive set, usually from an STR report. Net operating income after a management fee and a furniture, fixtures and equipment (FF&E) reserve, typically 4% of revenue, is what has to cover the debt. That is why hotel loans carry lower leverage and slightly higher rates than multifamily, and why an experienced operator can get terms a first-time buyer cannot.

The flag matters too. A franchised property with a Hampton, Holiday Inn Express or Marriott brand has a franchise agreement, a brand-mandated Property Improvement Plan (PIP) and quality inspections. Lenders like the revenue visibility and want to see the PIP cost in the budget. Independent and boutique hotels are financeable, but the operator's track record carries more of the weight.

The four ways to finance a hotel

UFIG is a loan correspondent: we originate, underwrite and deliver the loan through our Correspondent Lending channel, or place it through our Capital Network, from SBA lenders and banks to CMBS, life companies and private bridge lenders. Most hotel loans come from one of four places.

Leverage and terms are indicative; final terms depend on the property, the sponsor and the lender. Loans from $500,000; bridge and private money from $1,000,000.

How to finance a hotel purchase

Most hotel acquisitions follow one of two paths. Owner-operators buying a property under about $5M, especially independents and budget or exterior-corridor motels, usually do best with SBA 7(a) or 504, because the government guarantee is what gets a 90% loan done on an asset most banks would cap at 65%. Buyers of stabilized flagged hotels with a track record generally get better pricing from a conventional or CMBS lender at lower leverage. A buyer who needs to close in two or three weeks, or who is acquiring a property with a large PIP or weak trailing numbers, starts with a bridge loan and refinances into permanent debt once the property is stabilized, usually 12 to 24 months later.

Expect to show: a trailing-12-month and three-year P&L, an STR report for flagged properties, the franchise agreement and PIP, a personal financial statement for each guarantor, and evidence of hotel operating experience. A purchase contract with a realistic closing window helps; 45 days is tight for SBA, comfortable for bridge.

Refinancing a hotel

Hotel refinances fall into three groups: a maturing loan or balloon that needs to be replaced, a cash-out refinance to pull equity from a property that has appreciated or stabilized, and a bridge-to-permanent takeout after a renovation or rebrand. Lenders size a refinance on current NOI and a fresh appraisal, so a property whose RevPAR has improved since the original loan can often refinance at a higher dollar amount and a lower rate. SBA 7(a) can also refinance existing debt in many cases when the refinance improves cash flow, which makes it a common exit for owners who bought with private money.

Motels, exterior-corridor and non-flagged properties

Many lenders decline exterior-corridor motels and independent properties outright. They are still financeable. SBA 7(a) is the usual route for an owner-operator; private and hard money covers purchases that cannot wait for SBA or properties with trailing numbers that do not yet support a bank loan. Clean books, a credible operator and a realistic capital-expenditure plan are what separate the motels that get financed from the ones that do not.

PIP, renovation and FF&E financing

A brand-required PIP at acquisition or at franchise renewal can run from a few hundred thousand dollars to several million. It can be built into the acquisition loan, financed separately against the improvements, or carried on a bridge loan while the work is done. Furniture, fixtures and equipment are typically financed over their useful life, three to ten years, and soft costs can often be included.

Hotel loan rates today

Hotel loan rates price as a spread over an index: the 10-Year Treasury for fixed-rate conventional and CMBS loans, Prime for SBA 7(a), SOFR for most bridge loans. Hospitality carries a wider spread than multifamily or industrial because of the operating risk. The table below reads from UFIG's live rate sheet; for every program and property type, see today's commercial mortgage rates.

Indicative rates for qualified borrowers at standard leverage, updated daily from market indices. SBA 504 composite blends a Prime + 1.50% first mortgage (50%) with the 25-year debenture (40%). Final rate depends on DSCR, LTV, flag, sponsor and loan size.

Hotel financing nationwide

UFIG arranges hotel and motel loans in all 50 states and Canada, with the largest volume in Texas, Florida, New Youk, Georgia, the Carolinas, Pennsylvania, Ohio and the Mountain West. Because we place loans through a Capital Network of SBA lenders, banks, CMBS conduits and private lenders rather than one balance sheet, a property in a secondary or seasonal market is matched to a lender that already lends there.

Send us the property, the loan amount and the timeline. A hospitality loan officer, not a call center, will tell you within one business day which program fits and what it will cost.