The hotel industry is highly competitive and has many operational challenges that in some cases, require financing to solve various issues. There are many options for financing a hotel that exists, but knowing which one is best for your specific needs may require some work. It’s important to understand the different types of products available in the hotel business lending marketplace so you can make informed decisions and get the best terms for your hotel financing.

How Hotel and Motel Loans Can Help You

Whether you are just starting out or an established hotel/motel that needs to expand, there are many reasons to get hotel financing.

Here’s a list of the top reasons for hotel financing:

• Working Capital to improve cash flow
• Internet Advertising
• Equipment Purchases
• Inventory and/or Supplies
• Renovations
• Interior Decorating/ Remodeling
• Software/ Point of Sales Equipment Purchases
• Emergency Repairs

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How to Choose the Right Hotel/Motel Small Business Loan

The first step in the process of getting hotel financing is always to ask yourself why you need the money. What is the purpose of the cash for your hotel? And how will the financing options benefit your hotel? The purpose and use will dictate what loan product you will choose for your hotel business. It’s not just about the interest rate. You need to balance interest rates with costs, length of time of repayment, payment frequency, and product flexibility when making the best choice. Looking over all of your hotel financing options is a great start.

9 Best Hotel Business Loans

1. SBA Loans for Hotels

Small Business Administration offers “SBA Loans” that are loans backed by the Small Business Administration and provide guarantees to the issuers of these loans in case of default. The Small Business Administration does not lend the money; they just set guidelines and ensure the loans for issuers. SBA loans have excellent terms both for interest rate and duration. This is a great option for larger amounts of capital that require long term financing. Qualifications are stringent and do require significant paperwork and time for decisions, but they are well worth it in that they offer attractive interest rates and time durations to payback. There are two options that owners can use to finance their operation: SBA 7, SBA microloan, and SBA 504.

The SBA 7 (a) program is great for those looking for their first SBA loan option. It’s a loan program that is both general-purpose and has a lot of flexibility. While some candidates may not be a great fit for this loan product, the SBA 7 (a) is a great place to start for a hotel business owner that’s just getting started.

The SBA microloan program is for those with high startup costs or overhead for their hotel business. It’s a great loan option for those seeking a lower loan amount that can help with working capital or other less expensive needs.

The SBA CDC/504 program is for larger loan amounts for your hotel business. Perhaps you’re looking to grow or purchase real estate and need reliable financing for hotel expansion. Financing hotel developments or real estate is not a cheap endeavor, so it’s great to have an option for more expensive loan needs.

Product Overview

Rates: Principal & Interest rates from 6.50% up to Prime plus 1% to 2.75%

Terms: 2 to 25 years

Fees: 1% to 3% Origination Fees

Payments: Monthly

Credit Standards: Must have good to excellent credit and deep credit history

Processing Time: 1 week to 30 days

Benefits and Best Uses of SBA Loans:

SBA loans offer excellent rates with attractive loan terms and allow for larger amounts to fund big projects and hotel expansion. 

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2. Traditional Bank Loans for Hotels

Traditional bank loans offer low rates and attractive terms for businesses that are at least three years in business. Bank loan rates are competitive and are typically 4.5% up to Prime plus 1% to 2%. Hotel loan products offered by a bank will not be easy to get as they require significant paperwork and offer loans based on the profit & loss of the hotel business’s financial statements. Hotel lending is a risky endeavor, and banks have a very low approval rate because they must be risk-averse as they have both consumer and hotel customer depositors to protect. Less than 20% of all bank loan applicants receive approval from a bank and fund. 

Product Overview

Rates: Principal & Interest rates 4.5% up to Prime plus 1% to 2.75%.

Terms: 1 to 5 years

Fees: 0% up to 3% Origination Fees

Payments: Monthly

Credit Standards: Must have excellent credit and deep credit history

Processing Times: 1 week to 30 days 

Benefits and Best Uses of Traditional Bank Loans:

Banks’ requirements for the use of the money can be used for a variety of different purposes, such as acquiring an existing or new hotel, hotel expansion, or working capital. A traditional bank loan has great rates, good terms, and low fees.

3. Business Lines of Credit for Hotels

Business lines of credit operate a lot like a credit card in that it is an open revolving line of credit that allows for draws at any time up to a specific credit limit. Business Lines of Credit are the most flexible hotel business funding products available in the marketplace, with the exception of business credit cards. 

Product Overview

Rates: Principal & Interest rates starting at 4.5% 

Terms: Revolving credit with renewals quarterly, 6 months or 12 months

Fees: 0% to 3% Origination Fees

Payments: Monthly

Credit Standards: Must have excellent credit and deep credit history

Special Features: You can draw as little or as much money up to a credit limit at any time

Processing Times: A few days up to 30 days depending on the business lender

Benefits and Best Uses of Business Lines of Credit:

One word can explain why hotel owners choose this a business line of credit, Flexibility. A must for any hotel owner’s toolbox, a business line of credit allows the ability to draw money at any time and use it when you need it is immediate. It is very common for businesses to have a business line of credit in conjunction with other term loans and credit cards. You have unlimited use of the money for a business line of credit with no questions asked, but most common is general working capital and cash flow needs.

4. Long Term Business Loans for Hotels

Long Term business loan offerings have become more prevalent in the last ten years with the advent of financial technology companies leading the way with new credit decision algorithms not seen before. Long Term is defined as terms over two years in duration, Rates vary great and can start at 6.99% and go up to as 28% based on credit and financial condition of the hotel. There will be substantial documentation requirements to qualify and get approved as the rates and terms are attractive, and underwriting looks deeper into risk. Application decline rates on these programs are in the range of 75% to 80%, so only really healthy and profitable businesses get approved. 

Product Overview

Rates: Interest rates starting at 6.99% 

Terms: 2 to 5 years

Fees: 1% to 3% Origination Fees

Payments: Monthly, Bi-monthly

Credit Standards: Must have excellent credit and deep credit history

Benefits and Best Uses of Long Term Loans for Hotels:

The use of the money can be used for a variety of different purposes and usually fund long term projects like hotel expansion. Long term hotel loan options have great rates, good terms, and low fees.

5. Short Term Business Loans for Hotels

Short term hotel loans have a fixed amount offered upfront, with a fixed payback amount over a fixed term of time typically 6 to 18 months. Short term business financing can be a great alternative when you cannot qualify for more traditional hotel loan products. Rates are based on factor costs and not principal and interest and cost more than traditional hotel loans. The good news is these products require very little paperwork and credit requirements are much more forgiving than traditional hotel loans.

Product Overview

Rates: Factor Rates range from 1.10% up to 1.45% of the funded amount

Terms: Typically 6 to 18 months

Fees: 1% to 5% Origination Fees

Payments: Weekly, Bi-Weekly, Monthly, and in some cases daily Monday-Friday

Credit Standards: Poor to Excellent. All credit considered

Special Features: Approval of funding can be the same day to 24 hours

Benefits and Best Uses of Short Term Loans:

Even though short term hotel loans have higher rates and fees, it can come in real handy when you can’t get approved for more traditional hotel loan products. The use of the money can be used for a variety of different purposes but most commonly used for working capital and cash flow problems.

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6. Merchant Cash Advance for Hotels

Merchant Cash Advances (also known as a Purchase of Future Sales Agreement) advance a fixed sum of money to a hotel owner with a payback (discounted purchase price) that is a greater amount than the lump sum upfront provided to the merchant. The advance is repaid by taking a fixed percentage of future credit card sales batches until the payback amount is paid back in full.

There is no term limit with a merchant cash advance as the payback is a set fixed percentage that does not change from future credit card batches. The time frame to pay back depends on the volumes of future credit card sales and fluctuates. It’s estimated that Merchant Cash Advances are set up with expectations of being repaid in 6 to 18 months, but again, it may be longer or shorter depending on future credit card sales. 

Product Overview

Rates: Factor Rates from 1.09% up to 1.45%

Terms: Estimated payback periods are 6 to 18 months. No term limits

Fees: 1% to 5% Origination Fees

Payments: Fixed percentage Splits from future credit card batches

Credit Standards: Poor to Excellent credit accepted. All credit types considered

Benefits and Best Uses of Merchant Cash Advance 

The flexibility of repayment, which is attached to the fixed percentage of future sales, is very popular with hotel owners despite the fact that merchant cash advances cost more than traditional bank financing with higher rates and fees. The use of the money can be used for a variety of different purposes, but a majority of money is used for working capital or cash flow needs.

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7. Business Cash Advance for Hotels

Business Cash Advances (also known as a Purchase of Future Sales Agreement), advance like a merchant cash advance that provides a fixed amount of money up front to a hotel owner with a payback (discounted purchase price) that is a greater amount than the lump sum upfront provided to the merchant. Unlike a merchant cash advance, which takes a percentage of future credit card sales, the business cash advance is repaid by taking a fixed percentage of future overall sales. Payments are collected by a fixed daily or weekly payment deducted from a business bank account, which is based on the fixed percentage of future sales. 

Every month, if the fixed payments take more than the set future percentage of sales, than a refund back to the merchant can occur. This repayment continues until the payback amount is paid back in full. There is no term limit with advances as the fixed back percentage never changes. The time frame to pay back is not fixed because volumes of future overall sales are not the same type. Expectations of being repaid are in 6 to 18 months range, but again, it may be longer or shorter depending on future credit card sales. 

Product Overview

Rates: Factor Rates from 1.09% up to 1.45% of the funded amount

Terms: Estimated payback periods are 6 to 18 months. No term limits

Fees: 1% to 5% Origination Fees

Payments: Fixed ACH payments weekly or daily Monday-Friday 

Credit Standards: Poor to Excellent accepted. All credit types considered

Benefits and Best Uses of Business Cash Advance for a Hotel:

Business Cash Advances provides money to businesses as an alternative to traditional loan options when it’s not an option. The use of the money can be used for a variety of different purposes, but a majority of the reasons are cash flow or working capital to help the hotel business.

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8. Equipment Financing for Hotels

Equipment financing Loans and Leases use the collateral of equipment to be able to provide longer repayment schedules, which are typically 3 to 5 years to repay and monthly payments, making them very popular from a cash flow perspective. There is a trade-off as they typically have higher rates and fees than traditional hotel financing.     

Product Overview

Rates: Interest rates or factor rates

Terms: 1 to 5 years

Fees: 1% to 3% Origination Fees

Payments: Monthly Payments

Credit Standards: Must have good to excellent credit and deep credit history

Unique Features: Fast process and limited paperwork required   

Benefits and Best Uses of Equipment Financing for a Hotel:

The process is fast and simple, and funding can occur in as little as instantly. Equipment financing has great rates, good terms, and low fees.

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9. Business Credit Cards for Hotels

Business credit cards, like credit cards, are a revolving credit line bit is different in that a card is issued that can be used for both purchases and payments. This hotel finance product is a must for businesses and is commonly used in conjunction with other hotel loan products.

Product Overview

Rates: Interest rates range from introductory rates of 0% up to 28.99%

Terms: Revolving credit line with no term limits 

Fees: 1% to 3% Origination Fees

Payments: Low flexible monthly payments

Credit Standards: Must have good to excellent credit and deep credit history

Benefits and Best Uses of Business Credit Cards:

Business Credit cards are a must for businesses, and flexibility is unpatrolled and can be used in conjunction with other hotel loan products. The access of money 24/7 (within credit limits) is second to none. Also, because it’s a revolving line of credit, the payments are lower than fixed-term loans when considering the credit limit amount.

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Most Frequently Asked Questions

How Can I Get a Loan for a Hotel?

It is not difficult to find hotel business financing. There are many hotel loan products available to obtain, and depending on the product, it can be quite easy to obtain.

What are the interest rates for Hotel financing?

Interest rates vary widely depending on the hotel business loan product.

How Does A Hotel Get Funding?

The average fees range from 1% to 5% of the loan amount in origination fees. Costs and fees vary widely depending on the type of hotel business loan you qualify for. Always look loan disclosures and agreements and check terms and conditions of any offer for all specific fees to be charged.

Can I qualify for a Hotel or Motel Business Loan if I have bad credit?

The short answer is most likely YES. Short term options, along with both business and merchant cash advance, allow for bad credit with some limitations. Traditional business loans and lines of credit do not allow for bad credit for your hotel.

Can I Get a Hotel Business Loan Without a Personal Guarantee?

Yes, some funding options and advance products come without personal guarantees but careful, without personal guarantees rates, and cost tends to be much higher than with a guarantee. When financing hotels, carefully weigh your options.

How to Apply (and Qualify) for Hotel Financing

Check out How to Find the Best Small Business Loans to weigh all the benefits and evaluate the decision to get funding for your business.

Applying for a loan with AdvancePoint Capital is as simple as a 1, 2, 3, 4 process. Start with this online form, then fill out the short application page, wait a few hours for your approval, and then get your money!

AdvancePoint Capital offers an easy business loan experience for your hotel. Our customers love the fast, streamlined process and high approval rates that come from working with us. All credit scores are considered.

The fast, convenient, and straightforward way to get the money you need for your business – now! Get your Quote Today by filling out our simple form.

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* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.