Retail, food and hospitality
Hotel and Motel Financing
Hotels are written as real estate and operating business at once. SBA 7(a) and 504 lenders fund smaller flagged and independent properties, banks and credit unions refinance stabilized ones, and bridge lenders carry acquisitions, conversions and property improvement plans until the numbers support permanent debt.
What lenders weigh in a hotels, motels & short-term rentals file
- Occupancy, average daily rate and RevPAR by month against the competitive set, because a hotel's income moves with the market and the lender sizes the loan on the trailing twelve months.
- Net operating income after management fees and a furniture and equipment reserve, which lenders commonly deduct before testing debt service coverage.
- The flag: the remaining term on the franchise agreement, the brand's approval of the owner, and any property improvement plan due at sale, renewal or conversion.
- The property's condition and environmental history, read through a property condition assessment and an environmental report before the loan is sized.
- The market's demand generators and new supply, and whether the hotel depends on one employer, one highway interchange or one season.
- The operator: hotel experience on the ownership team or a management company, since an absentee investor without either is a decline at most sources.
What gets funded
- SBA 7(a) loans for smaller flagged and independent hotels: Acquisition, refinance or a PIP plus working capital in one long-term loan. Lenders say yes because the SBA guaranty offsets the operating risk, and several SBA lenders write hotels as a specialty.
- SBA 504 loans for purchase and heavy renovation: A bank first lien and a certified development company second on the property, with the renovation in the project. Often the lowest-cost route for an owner-operator buying a hotel, when the size and structure fit.
- Conventional bank and credit union loans: For stabilized hotels with several years of history, an experienced owner and a strong market. Lower cost and lower loan-to-value than SBA, usually with a relationship expected.
- Bridge and renovation loans: For an acquisition with a PIP, a brand conversion, a weak trailing year or a maturing loan. Interest-only with a renovation holdback funded in draws, repaid by a permanent loan once the hotel shows a stabilized year.
- FF&E and equipment financing: Guest-room packages, mattresses, televisions, PTAC units, locks and laundry, secured by the equipment and written on the vendor invoice. Paired with a renovation loan and refinanced together after the work.
- DSCR loans for short-term rental operators and small inns: Underwritten on the property's own rental income rather than the owner's returns. Written for operators whose properties are closer to rentals than to hotels.
Hotels, Motels & Short-Term Rentals funding guides
- Hotel Renovation and PIP Financing: Funding a Brand-Mandated Property Improvement Plan — Hotel PIP financing comes from FF&E lenders for the rooms package, bridge and renovation lenders with a holdback for the construction, and SBA 7(a) or 504 lenders when the plan is part of a purchase or refinance.
- Hotel Financing: SBA, Conventional and Bridge Loans for Hotels and Motels — Hotel financing comes from SBA 7(a) and 504 lenders for smaller flagged and independent properties, banks and credit unions for stabilized hotels, and bridge lenders for acquisitions, repositioning and maturing debt.
How MercFinancial places hotels, motels & short-term rentals requests
MercFinancial is a commercial funding brokerage in Houston, not a lender, and it does not have a hotel program or a promise of approval. A hotel request starts with the file: the operating history and the monthly occupancy, rate and RevPAR, the property and its condition, the franchise agreement and any property improvement plan, the purchase contract or the existing loan, and the owner's experience, equity and credit. From there, the funding sources among MercFinancial's more than 160 whose credit policy allows hospitality real estate and the structure in question are identified, one file is placed with all of them, and the offers are compared side by side.
Whether any product is available depends on the funding source, and when nothing fits yet, you are told that plainly along with what would change the answer. Stephanie, the lending assistant, pre-qualifies a request in a few minutes with a soft credit pull that does not affect your score, and a free call with a funding specialist is booked at the contact page.
Frequently asked questions
Can I get a loan to buy a hotel or motel?
Yes. Smaller flagged and independent hotels are commonly financed with SBA 7(a) or 504 loans, stabilized properties with bank or credit union loans, and acquisitions that need a property improvement plan or a conversion with bridge loans repaid by a later refinance. Lenders underwrite occupancy, rate and RevPAR, the flag, the property's condition and the owner's hotel experience. Availability depends on the funding source.
What is RevPAR and why do lenders care?
Revenue per available room is the average daily rate multiplied by occupancy, which makes it the one number that captures both how full a hotel is and what it charges. Lenders compare it month by month with the property's competitive set to judge whether the income is stable, growing or slipping, and they size the loan on what the trailing twelve months of RevPAR actually produced.
What is a PIP and who pays for it?
A property improvement plan is the renovation a brand requires at sale, renewal or conversion to meet its current standards. The owner pays for it, which is why a buyer treats the PIP as part of the purchase price and an existing owner finances it with FF&E loans, a renovation loan with a holdback, or an SBA loan that includes the work and working capital.
Can an independent or boutique hotel get financing?
Yes, with more weight on the operator and the market. Without a brand, lenders look harder at the owner's hotel experience, the property's reviews and rate position, the trailing twelve months and whether a management company is involved. SBA lenders and community banks write independents, DSCR lenders write small inns and short-term rental operators, and bridge lenders fund conversions.
How much equity does a hotel purchase need?
It depends on the program and the funding source. SBA 7(a) and 504 loans commonly require a smaller injection than a conventional bank, which lends at a lower loan-to-value on hotels than on other commercial property because the income is operating income. Any property improvement plan is part of the project cost, and lenders want liquidity left after closing for the ramp.
Financing for this industry
- Business Funding — Eight programs, one file, 160+ lenders.
- Real Estate Funding — DSCR, fix and flip, construction, bridge and portfolio loans for investors.
Related industries
MercFinancial is a commercial funding brokerage, not a lender. Approval, loan amount, rate, term and funding are decided by the funding source on the strength of the file; nothing on this page is an offer or a commitment to lend.