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Hotel & Motel Financing

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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 property, but knowing which one is best for your specific needs may require some work. It’s essential to understand the different types of products available from lenders in the hotel and motel business marketplace so you can make informed decisions and get the best terms from trusted lenders to finance your hotel.

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How Hotel and Motel Loans Can Help You

Whether you are just starting or own an existing hotel or motel that needs to expand, there are many reasons to get hotel financing. From purchasing a new property to acquiring independent hotels, there are various loan programs and funding options for borrowers. Those who need a loan or are looking to refinance can find the right solutions for their business.

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

  • Working capital to improve cash flow
  • Internet advertising
  • Equipment purchases
  • Existing hotel construction
  • Inventory and supplies
  • Property renovations
  • Interior decorating and remodeling of existing property
  • Updating an older hotel property
  • Software and point of sales equipment purchases
  • Emergency repairs
  • Refinance
  • Hotel acquisition
  • Buying other real estate
  • Additional hotel projects

How to Choose the Right Hotel or Motel Small Business Loan

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

9 Best Hotel Business Loans

1. SBA Hotel Loans

The Small Business Administration offers “SBA Loans” that are loans backed by the government agency 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 rates and duration.

This is an excellent option for more significant amounts of capital that require long-term financing. Qualifications are stringent and do require considerable paperwork and time for decisions. Still, an SBA loan program is well worth it because it offers attractive interest rates and time durations to pay back. There are a few options that hotel and motel 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 new hotel owner. If you need to finance a new hotel, purchase property, or fund hotel construction, these loan terms could be agreeable for your needs.

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

The SBA CDC/504 program is for more significant loan amounts for your hotel. Perhaps you’re looking to grow or purchase commercial real estate property and need reliable hotel construction financing. Financing hotel developments or real estate is not a cheap endeavor, so it’s great to have an option for more expensive loan needs. Hotel construction costs can add up, making the right financing an essential component for hotel property owners.

 

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: Good to excellent and deep financial history
  • Processing Time: 1 week to 30 days

 

Benefits and Best Uses of an SBA Loan

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

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Small Business Administration (SBA) Loans

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2. Traditional Bank Loans

Traditional bank loans offer low rates and attractive terms for businesses with at least three years in business. Conventional bank loan rates are competitive and are typically 4.5% up to prime plus 1-2%. 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 and loss of the hotel business’s financial statements. Non-bank loans are typically easier to secure.

Hotel lending is a risky endeavor. A conventional bank loan might have a very low approval rate because the bank 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. The lucky borrowers who do secure finance traditionally can count on getting the money they need to succeed.

 

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: Excellent with a deep financial history
  • Processing Times: 1 week to 30 days

 

Benefits and Best Uses of a Traditional Bank Loan

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 capital. A traditional bank loan has great rates, good terms, and low fees.

 

Traditional Bank Loans

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3. Business Lines of Credit for Hotels and Motels

Business lines of credit are an open revolving line of credit that allows for draws at any time up to a specific limit. Business lines of credit are the most flexible hotel funding products available in the marketplace, except business credit cards.

 

Product Overview

  • Rates: Principal & interest rates starting at 4.5%
  • Terms: Revolving with renewals quarterly, 6 months, or 12 months
  • Fees: 0% to 3% origination fees
  • Payments: Monthly
  • Credit Standards: Excellent with a deep financial history
  • Special Features: You can draw as little or as much money up to a specific 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 business lines of credit: flexibility. A must for any hotel owner’s toolbox, a credit line allows the ability to draw money at any time and use it when you need it. It is very common for businesses to have a credit line with other hotel loans and credit cards. You have unlimited use of the money for a credit line with no questions asked, but generally capital and cash needs are most common.

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Business Line of Credit

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4. Long-Term Business Loans for Hotels and Motels

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 greatly and can start at 6.99% and go up to 28% based on the 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. These programs’ application decline rates range from 75% to 80%, so only healthy and profitable businesses get approved. Lenders tend to be much more cautious when choosing what type of borrowers to accept for a long-term loan.

 

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: Excellent with a deep financial history

 

Benefits and Best Uses of a Long-Term Hotel Loan

Commercial loans can be used for various purposes and usually fund long-term projects like hotel expansion. Long-term hotel loan options have great rates, good terms, and low fees.

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Long Term Business Loans

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5. Short-Term Business Loans for Hotels and Motels

Short-term hotel loans have a fixed amount offered upfront, with a set payback amount over a specified 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 conventional hotel loans. The good news is these products require very little paperwork, and financial 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
  • Special Features: Approval of funding can be the same day to 24 hours

 

Benefits and Best Uses of a Short-Term Loan

Even though short-term hotel loans have higher rates and fees, they can come in real handy when you can’t get approved for more traditional hotel loan products. The money can be used for various purposes but is most commonly used for capital and cash flow problems.

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Short Term Business Loans

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6. Merchant Cash Advance for Hotels and Motels

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) more significant 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 fluctuates since it depends on the volumes of future credit card sales. 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 with no term limits
  • Fees: 1% to 5% origination fees
  • Payments: Fixed percentage splits from future credit card batches
  • Credit Standards: Poor to excellent

 

Benefits and Best Uses of Merchant Cash Advance 

The flexibility of repayment, attached to the fixed percentage of future sales, is very popular with hotel owners even though this type of funding costs more than traditional bank financing with higher rates and fees. The money can be used for various purposes but is most commonly used for capital needs.

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Merchant Cash Advance

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7. Business Cash Advance for Hotels and Motels

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 rate of future overall sales. Payments are collected by a fixed daily or weekly price deducted from a business account based on the specified percentage of future sales.

Every month, if the fixed payments take more than the set future percentage of sales, 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 the 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

 

Benefits and Best Uses of Business Cash Advance for a Hotel

Business cash advances provide money to businesses as an alternative to traditional loan options when they’re not an option. The funds can be used for various purposes, but are typically needed for cash flow or working capital to help the hotel.

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Business Cash Advance

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8. Equipment Financing for Hotels and Motels

Equipment funding uses the collateral of equipment to be able to provide longer repayment schedules, which are typically three to five 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: Good to excellent with a deep history
  • Unique Features: Fast process and limited paperwork required

 

Benefits and Best Uses of Equipment Funding for a Hotel

The process is fast and simple, and funding can occur instantly. It has great rates, good terms, and low fees. If your list of hotel projects includes buying new equipment, look into this type of funding.

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Equipment Loans

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9. Business Credit Cards for Hotels and Motels

Business credit cards are revolving credit lines that can be used for both purchases and payments. This hotel finance product is a must for businesses and is commonly used with other hotel loan products.

 

Product Overview

  • Rates: Interest rates range from introductory rates of 0% up to 28.99%
  • Terms: Revolving line with no term limits 
  • Fees: 1% to 3% origination fees
  • Payments: Low flexible monthly payments
  • Credit Standards: Good to excellent with a deep financial history

 

Benefits and Best Uses of Business Credit Cards

Credit cards are a must for businesses, and flexibility is unpatrolled and can be used in conjunction with other hotel loan products. The access to money 24/7 (within limits) is second to none. Payments are lower than fixed-term hotel loans when considering the limit amount.

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Frequently Asked Questions

It is not difficult to find hotel and motel financing. There are many loan products available, and depending on the product, it can be quite easy to obtain. Online lenders offer finance opportunities, including hotel bridge financing and hotel loans for those that need to refinance. Other finance choices are available for those looking to purchase property for their hotel or motel and need to find lenders to help with that venture.

Interest rates vary widely depending on the loan product. Hotel or motel owners can research various lenders to see what their loan products are and how interest rates may vary depending on the type of finance option chosen. Lenders are eager to help any small business expand, and if you have a good track record your rates will be better.

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 and motel loans you qualify for. Always look at loan disclosures and agreements and check the terms and conditions of any offer for all specific fees to be charged. Lenders should be explicit about what the costs and fees are for your hotel or motel financing.

The short answer is most likely yes. Short-term options from lenders, along with both business and merchant cash advances, allow for bad credit with some limitations. Traditional business loans and lines of credit do not allow for bad credit for your hotel or motel. It’s easy to win over non-bank lenders when you have a solid business plan and are confident how your hotel property will allocate the funds. Some borrowers might even choose to refinance. Bridge loans are also available for your small business.

Yes, some financing options and advance products come without personal guarantees but be careful, because without personal guarantee rates, loan cost tends to be much higher than with a guarantee. When financing a new hotel or even an older hotel property, carefully weigh your options among lenders. Bridge loans and other loan products are sometimes available without signing this type of binding contract.

It’s possible to use a loan to refinance your hotel if you’ve run into financial trouble with property costs or other business expenses. There is no shame in needing to refinance to keep your hotel going. Many lenders offer different loan products that can help you continue operating, with the funds you need for your hotel property. Check with lenders on their specific refinance plans.

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