Bridging Finance For Hotels

Investing in a hotel, either because you’re purchasing a new one or renovating an existing one, can result in a lengthy finance process whilst navigating a competitive market. If you need to raise capital quickly, a hotel bridging loan might be the answer.

This kind of short-term financing works in a very different way to traditional borrowing. Here we outline what you’ll need to know about these quick-fix loans and how to go about applying for one.

Can you get a bridging loan for a hotel?

Yes, it’s possible and they are often an attractive method of financing because of their primary benefits: funds are released quickly and the criteria for qualifying for one are placed at the discretion of specialist lenders because they’re unregulated loans.

This means the strict regulations placed on traditional loans and mortgages by the Financial Conduct Authority (FCA) do not apply, and niche financiers are able to look at each application with a holistic and bespoke approach. Ultimately, if the numbers for repayment make sense, you have a better chance of being successful.

Why would you use one?

If you’re in the hotel sector you could be looking for a quick cash injection for a number of reasons. A good broker, like the ones we work with, can help you to understand whether this kind of borrowing is ideal for your circumstances.

Land or property acquisition:

Whether you are buying your first hotel or adding to your hospitality portfolio, a bridging loan can act as a first step towards making this happen if you don’t have access to the funds you need immediately, either because capital is tied up in a pending sale or you’re waiting for long-term finance to be approved.

Renovation work:

If you’re trying to grow your business but operating costs alone can not stretch to the initial outlay, financial bridging to renovate a hotel is a possibility until revenue is available. You might also need one if you are making substantial improvements to a property before it becomes a working hotel, but can’t yet get a regulated loan to cover it because it’s unmortgageable in its current state.

Waiting for main mortgage or other financial product:

If you need to move quickly to make a purchase, such as if you’re buying at auction or other potential buyers are closing in, bridging lenders could step in until the approval of the mortgage for your hotel takes its place.

Cash flow is a setback:

Sometimes even high net worth hoteliers and high turnover hotels face obstacles in cash flow and need a stop-gap in funds. For example, if you’re waiting for a sale to go through or there are unforeseen costs in a building project.

What are the benefits?

There are a number of attractive features with these bridging loan products, chiefly that they are a quick way of acquiring finance when you really need it, and that your whole fiscal status and situation are taken into consideration, rather than rigid box-ticking about income and credit history.

Hotel bridging loans are provided by specialist lenders, rather than mainstream banks, and they will look at your circumstances in depth and as an individual case. They will place far greater emphasis on how strong your exit strategy is from the loan, which is good news for hoteliers who have complex commercial budgets and turnover, making them adaptable, able to overlook blips in credit history, and sometimes there’s no maximum limits of what you can borrow.

How much would it cost?

Despite the advantages of a bridging loan, it’s worth bearing in mind that it is an expensive financing option and should be taken over as little time as possible due to the hefty interest that mounts up. Many loans for hotels don’t stretch beyond 12 months anyway, but if you have borrowed millions your bill will still build up in a short space of time.

To get an idea of what how much hotel bridging financing might cost you, try out our calculator below.

How a broker can help secure the bridging finance you need

When financing reaches this level of complexity, specialist brokers have to be involved to ensure a degree of protection is afforded to both sides of the deal – both lenders and borrowers alike need extra support to ensure everything is legitimate and feasible.

As well as mitigating risk, bridging loan brokers are necessary intermediaries because they have access to this more obscure area of the market, they understand the intricacies involved in hotel financing, and they can support their clients in a practical and insightful way.

In addition to finding the right provider for you, the brokers we work with will help you to get a clear picture of the borrowing you’re about to undertake and they will negotiate on your behalf to ensure you get the best deal possible. When it comes to this kind of loan, savings of just a few percent can equate to enormous sums over the course of the term.

If you get in touch, we’ll arrange for a bridging loan specialist, who has experience arranging finance for hotel purchases, contacts you directly for a free, no obligation chat.

Eligibility criteria

The unregulated nature of these loans allow for greater flexibility and lending criteria, and the biggest factor that will be scrutinised will be your ability to pay the loan back in full, plus fees, without any glitches. The stronger your exit strategy and the clearer you show what that is in your application, the greater your chance of success.

There are a number of other considerations that might be looked at by lenders, the strength of which could depend on the kind of deal you get. To unlock those all-important favourable rates, you should attempt to show you have:

• Good credit: While this is not as important here, there are some lenders who might be put off by the risk element of poor credit history, making your choice of provider slimmer.
• Experience in your sector: You’ll be deemed lower risk if you have an impressive track record in the hotel industry.
• A hefty deposit: It’s unlikely that you’ll be able to borrow more than 70-75% with a bridging loan, however it still stands here that the bigger your deposit, the better the rates available.
• Decent security property: A strong security property against the loan will be rewarded with better rates. You can put more than one property up as security.

Lenders and rates

If large bridging loans are seen as a specialist niche, hotel bridging financing is a narrow market indeed, and you won’t find these products among high street lenders’ offerings. Instead they are a sub-industry of their own, with the likes of Rangewell, Tiger Financial and Esteema Capital at the helm. Hotel bridge loan lenders also tend to work within the care home sector too, offering similar lending terms.

Typical interest rates in this area are about 0.45%-0.49% (monthly), however, some go as high as 0.6%. This is usually based on around 75% loan-to-value borrowing.

Are there any alternative hotel financing options?

There are other alternatives to bridging loans for financing a hotel that will bring down the cost of your borrowing, but they might result in the lengthy and restricted process that the bridging loans successfully avoid. However, they are always worth bearing in mind in case they’re a possibility for you. This is an area your broker will help with.

They involve more standard kinds of borrowing, such as business loans or commercial mortgages. One example of this is Shawbrook Bank, which is known for offering multi-million-pound commercial mortgages to back hotel developments.

You could also consider other unsecured loans, mezzanine financing, sale and leaseback or hire purchase.

How to find the right hotel bridging loan broker for you

We work with some incredible specialists in the hotel bridge financing sector, and we can get back to you within the day to begin matching you with the right expert for your circumstances. We understand time is of the essence, as is impartiality, discretion and honesty.

Contact our bridging loan team and get a free, no obligation consultation chat. Call us on 0808 189 2301 or make an enquiry today.