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Most hotel and motel operators need financing at some point. Hotel financing can pay for a second property, cover the cost of payroll during a slow season, or remodel to keep the building up to code.
In hotel financing, the property does most of the work. Lenders want to see how full your rooms get, what each one costs, and whether your revenue covers the loan payment. Below, I'll go over the financing types that make sense for the hospitality industry and how to match your route to the reason you're borrowing before you apply.
| Financing type | Financing speed | Typical amount | Rate or cost | Common use |
|---|---|---|---|---|
| SBA loans | As fast as 2 weeks | Up to $5 million | Up to 9.75%, or prime plus 3% | Acquisitions, real estate, and long-term financing |
| Short-term business loan | As fast as same day | $10,000 to $5 million | Starting at 6% APR | PIP deadlines, renovations, and fast closings |
| Business line of credit | As fast as same day | Up to $5 million | Starting at 6% APR | Seasonal working capital and slow-month gaps |
| Equipment financing | 1 to 5 days | Up to 100% of equipment value | Starting at 6% APR | Laundry, kitchen, HVAC, and shuttle vans |
| Invoice factoring | 1 to 2 weeks | Up to 100% of invoice value | 0.5% to 5% per invoice per month | Group booking and event receivables |
| Merchant cash advance | As fast as same day | Up to $5 million | Factor rate 1.08 to 1.45 | Short-term cash needs repaid from sales |
Hotel Financing Options Through Clarify Capital
The right type of hotel financing for your business depends on what you need and the timeline that you need it in. Let's get into the specifics on each type of financing.
SBA Loans
SBA 7(a) loans are a common route for hotel acquisitions, while SBA 504 loans are typically used for long-life equipment and owner-occupied commercial real estate purchases.
These loans are partially guaranteed by the U.S. Small Business Administration (SBA), which allows lenders to offer more competitive rates and repayment terms. Loans go up to $5 million with repayment terms from 10 to 25 years.
Short-Term Business Loans
A short-term business loan gives you a lump sum that you can use for a property improvement plan (PIP) deadline, hotel renovation, or another time-sensitive purchase. Borrow up to $5 million through Clarify Capital's lender network, with financing as quick as same day.
Business Lines of Credit
A business line of credit is a revolving line that you draw on and repay as needed. You only pay interest on what you use. Lines go up to $5 million with interest rates starting at 6%. Use this to cover day-to-day expenses that come with running a motel or inn.
Equipment Financing
Use equipment financing to pay for the machinery you need to run the hotel. It's used to cover HVAC systems, elevators, vehicles, commercial laundry equipment, and more. Finance up to 100% of the cost of the equipment. The equipment itself serves as collateral.
Merchant Cash Advances
A merchant cash advance (MCA) gives you cash up front in exchange for a percentage of your future sales. Advance up to $5 million through Clarify Capital's lender network. There's no fixed term on repayment, but it's usually estimated based on your future monthly sales. MCAs are more expensive than other types of financing but are useful in a pinch when you need cash quickly.
Invoice Factoring
Invoice factoring gives you access to capital that's tied up in your hotel's invoices. Repayment terms are aligned to when your customer pays, usually in 30, 60, or 90 days.
Minimum Qualifications
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
Hotel Loan Options From Other Lenders
The hotel financing options above are offered through Clarify Capital's lender network. But there are other financing options available as well.
Some other common routes for financing include credit unions, private lenders specialized in hospitality lending, and Certified Development Companies.
Here's how these alternatives compare.
| Financing type | Interest rate range | Common use |
|---|---|---|
| Conventional commercial loan | 5.29% to 12.75% | Stabilized properties with strong cash flow |
| Bridge loan | 7% to 11% | Fast closings and renovation holds |
| Commercial Mortgage Backed Securities (CMBS) loan | 6.37% to 8.16% | Large stabilized properties wanting no recourse |
| Construction loan | 5.50% to 8.75% | Ground-up construction |
How To Use Hotel Financing
Operators borrow for different reasons, and the reason usually points to the right route.
Buying an existing hotel
SBA 7(a) loans can be used for business acquisitions, like buying an existing motel or inn.
Building a new hotel
Use a construction loan to cover the cost of building. They convert to permanent financing once you're done.
PIP and renovations
SBA 504 and hotel bridge loans are often used for property renovations.
Seasonal working capital
Cover seasonal ups and downs with a business line of credit.
Refinancing existing debt
Lower a high monthly payment or roll the price of a costly renovation into a longer schedule.
Expanding to a second property
Business expansion loans let you expand your hotel across multiple properties.
How Financing Differs by Property Type
Lender expectations change depending on the type of property you're purchasing. The first question I ask is whether they're running a hotel franchise or an independent hotel.
In general, lenders view hotel franchises like Marriott or Hilton as less risky compared to independent hotels, because they come with a well-known brand name and built-in customers. Motels also have franchise options and come with simpler business models and less competition than hotels.
Buying a hotel franchise requires a lot of working capital. Well-known hotel brands require large initial investments. For example, Hilton's initial franchise investment runs from $33,709,705 to $140,694,073.
Owning an independent hotel, like a boutique hotel or a bed and breakfast, gives you more control over your offerings and design. You also likely won't have to pay any franchise fees. The trade-off is that independent hotels face stricter underwriting requirements from traditional lenders.
What Lenders Consider
Every lender is different, but they all look at similar things when reviewing your application for a hotel loan.
Occupancy rate
The share of your rooms that sell on an average night
Revenue per available room (RevPAR)
Occupancy rate multiplied by the average daily rate
Debt service coverage ratio (DSCR)
Net operating income divided by annual loan payments
Loan-to-value (LTV) ratio
Loan amount divided by the appraised property value
Monthly revenue
How much your hotel generates per month
Credit score
Lenders review your personal and business credit score
Time in business
Lenders favor operators who have lots of industry experience
Collateral
On hotel loans, the property usually secures the deal
Existing debt
Lenders want to see you can support your current debt and the new loan
Hotel Financing Costs and Fees
The first number everyone looks at is the interest rate, but there's a lot more that goes into the total cost of hotel financing.
You may also have to pay origination or underwriting fees. If you repay the loan early, you could be stuck with a prepayment penalty. SBA 7(a) loans come with a guarantee fee on the guaranteed portion of the loan. It's always important to read the fine print and ask for a fee schedule before you sign.
There are also day-to-day operational costs that come with running a hotel. Franchise fees are a major one. These fees can include marketing, loyalty, and reservation fees. Hilton's initial franchise fee is $75,000 with a 5% royalty fee and a 4% ad royalty fee. The terms of the agreement with Hilton run for 23 years.
Using a HELOC for Hotel Renovations and Expansion
If you have equity in your home, a home equity line of credit (HELOC) draws against that value. Use HELOCs to finance property improvements, PIP work, or an expansion.
There are a few things that are different about HELOCs. While you can use HELOCs to pay for business expenses, it's mainly a personal line of credit. This means that approval is determined based on your personal finances and credit score.
HELOCs are secured by your home. So if you can't pay the loan, your house may be at risk.
Through Clarify Capital's lender network, you can access a line of credit on available home equity up to $750,000.
Financing Your Hotel With Clarify Capital
Before you borrow for your hotel, ask yourself two questions: why are you borrowing, and can the property cover the payment? The operators with the highest success rate have clear answers before they apply for financing.
When you're ready to see what you qualify for, apply today with Clarify Capital and a lending advisor can show you what fits.
Frequently Asked Questions on Hotel Financing
Here are straight answers to the most common questions I get about hotel financing.
What Is the Best Loan for a Hotel?
The right loan depends on your reason for borrowing. SBA 7(a) loans fit acquisitions, while SBA 504 loans fit real estate purchases and renovations. Bridge financing works on a short timeline, and equipment financing can cover a broken piece of equipment.
What Is the SBA 504 Loan for Hotels?
The SBA 504 loan is financing for real estate and long-life equipment. It has a three-part structure where a lender covers 50% of the project, a Certified Development Company covers up to 40%, and you contribute the rest.
How Do Hotel Loans Work?
The hotel loan review process includes a look at occupancy rates, RevPAR, and net operating income. Lenders also want to make sure that your income can cover the cost of the payment and any other debt that the hotel has accumulated.
What Is the Monthly Payment on a $50,000 Business Loan?
It depends on the rate and the repayment term. At a 6% interest rate over two years, the payment is roughly $2,216 per month. Stretch that term out to five years at the same rate, and it drops to $967, though you'd pay $8,000 in total interest compared to $3,200.
How Hard Is It To Get a $100,000 Business Loan?
Getting a $100,000 business loan is achievable for an operating hotel with steady revenue. Lenders will review the property's cash flow. They'll also want to see consistent occupancy and clean bank statements.
Is My Information Safe When I Apply to Clarify Capital?
Clarify follows SOC 2 security principles. You'll share bank statements and business financials through a secure process, and a lending advisor reviews them directly rather than routing you through a call center or chatbot.
Bryan Gerson
Co-founder, Clarify
Bryan has personally arranged over $900 million in funding for businesses across trucking, restaurants, retail, construction, and healthcare. Since graduating from the University of Arizona in 2011, Bryan has spent his entire career in alternative finance, helping business owners secure capital when traditional banks turn them away. He specializes in bad credit funding, no doc lending, invoice factoring, and working capital solutions. More about the Clarify team →
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