Hotel Development Finance: Independent advice about buying a hotel in the UK. Guide to financing options to suit circumstances.

Have You Ever Dreamed of Running a Hotel?  Find Out More About What It Takes with our Brief Guide to Hotel Development Finance

 The tourism trade is one of the biggest growth areas in the UK Economy, with expectations of continued expansion anticipated over the next few years.[1]  There has been an increase in the number of tourists coming from abroad, taking advantage of the favourable exchange rate. Many UK residents are also spending less money abroad, preferring instead to take a ‘staycation’ with shorter city and spa breaks being favoured by many, over expensive longer holidays.

As a result, the hotel industry is booming in the UK and savvy investors are recognising that the sector could provide attractive long-term returns. Typically, hotels have good occupancy rates – 80% in London, and 75% outside of the capital –  providing a guaranteed continued income stream.  And despite competition from low budget providers such as Premier Inn and Travelodge, ADR (average daily rates) are also on the rise.

Hotel ownership is high on the investment agenda and there are great deals on finance to be found using specialist brokers and commercial mortgage experts. 

Hotel Construction Financing Options

Anyone wishing to apply to borrow from a lender will need to submit a detailed business plan with accurate profit and loss forecasting alongside any application for finance. There are also a number of other factors that financiers may take into consideration when assessing whether to lend you money to fund your hotel purchase.

If you are considering converting an existing building into Hotel premises or looking for finance to fund construction of a new one, there are specialist companies we can refer you to who can provide further advice and guidance.

 Hotel Financing Options When Taking on an Existing Hotel

 If you are looking at purchasing established premises you will need to do your homework to make sure that the business is viable in the long-term.  This is vitally important when preparing your application for Hotel Finance, but equally important for you as a business owner to ensure your financial success. 

 You should check the Hotel’s accounts and look at historic trends in performance.  Things like occupancy rates and bar/restaurant revenues (for at least 2 years of trading), will give you an indication of how well the hotel has been run in the past. 

 Lenders will also expect to see the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) of the business before assessing the affordability of any loan they may offer.  If the figures don’t add up, then the lender is unlikely to offer you any Hotel Finance.

 The reputation of an existing hotel will also be factored into any loan application.  If the Hotel has been on the receiving end of many bad reviews or has been subject to complaints in recent months, the lender will expect to know how you intend to resolve this.  Tourism businesses are susceptible to public opinion and a few bad reviews online can cause substantial fluctuations in trade. 

 Check online sites such as Trip Advisor and look at Google, Facebook and other reviews. 

• Are there any particular problems that could be easily resolved with refurbishment or a change in systems? You can factor these into your application and show the lender that you have a strategy in place.
• Is there an issue with staffing? Highlight any changes you would make to existing staff.  Consider what kind of training you would introduce to help alleviate this issue.
• Is it a case of bad (or non-existent) marketing? Or a failure to respond to customer complaints? Think about how you would manage this and include a detailed marketing plan with your application.  

What Skills will I Need to Demonstrate to a Lender to Access Hotel Finance?

Many Finance providers will look favourably at individuals who have experience within the hospitality industry.  If you have a strong CV which demonstrates a high level of skill, then make sure that you include this in your application. 

Lenders will also consider management experience in other sectors as a positive factor – particularly applicants who have run their own businesses in the past. Again, a good CV within any relevant industry will help boost any application.

How Much Can I Borrow?

Usually a lender will consider applications on a loan to value  (LTV) ratio so the amount you can borrow will vary.  They will take into consideration either the value of the property or the value of the business if it is run as a going concern.  Lenders will expect you to provide some form of deposit; typically, between 25% and 40%.   Lower down payments may be considered in exceptional circumstances.

Interest rates generally are currently quite low, but you generally pay more for commercial lending.  You can expect to see interest rates vary depending on the ‘risk’ that your debt poses for the lender.  An applicant with a clean credit history, large deposit, who is highly skilled in the hospitality industry is likely to get more favourable lending rates than someone who has no experience, bad credit and minimal deposit. 

Remember you will need to provide detailed records of your own personal finance as well as the business accounts of the property you wish to purchase.  The key is to provide as much information as possible with your application, so make sure you collate all the paperwork that you need before you start. 

[1] https://www.visitbritain.org/visitor-economy-facts