Hotel financing sits at the intersection of commercial real estate lending and business lending — because when you buy a hotel, you are acquiring both the real estate and an operating business. That dual nature makes hotel loans more complex, more specialized, and more selective than financing for any other commercial property type. Here is what you need to know.

Why Hotel Financing Is Different

Unlike an office building or apartment complex where tenants sign multi-year leases, a hotel re-leases every room every night. Revenue is entirely variable, tied to occupancy, average daily rate (ADR), and RevPAR (Revenue Per Available Room). This operational volatility makes lenders more cautious and more demanding in their underwriting.

Lenders underwrite hotel loans on trailing revenue (T-12 STAR reports), not pro forma projections. They want to see three or more years of actual operating history. New hotel construction and recently acquired properties are more difficult to finance because there is no track record to analyze.

Key Hotel Metrics Lenders Analyze

  • RevPAR: Revenue per available room — the primary performance metric. Compared to the competitive set and STR market data.
  • Occupancy rate: Should be at or above the competitive set average. Most lenders want to see stabilized occupancy above 65%.
  • Average Daily Rate (ADR): Compared to competitors in the same segment (luxury, select-service, economy).
  • Net Operating Income (NOI): After all operating expenses including management fees, franchise fees, and FF&E reserves.
  • FF&E reserve: Lenders require a 4-6% of revenue reserve for Furniture, Fixtures and Equipment replacement.
  • DSCR: Minimum 1.35x-1.50x, higher than other commercial property types, reflecting the operational risk.

Hotel Loan Types

Conventional Bank Loans

Regional and community banks will lend on branded hotels in their geographic footprint. Terms include:

  • LTV: Up to 65% for stabilized, branded product
  • Rate: SOFR + 250-350 bps (floating) or fixed at 6.50%-8.00%
  • Term: 5-10 years with 20-25 year amortization
  • Requires: Personal guarantee, strong brand affiliation, 3+ years operating history

SBA 7(a) and SBA 504 Loans

For owner-operated hotels under $5 million in total project cost, SBA programs offer exceptional terms:

  • SBA 7(a): Up to $5 million, variable rate (Prime + 2.75%-3.75%), up to 25-year term, 10-15% down payment
  • SBA 504: Up to 90% financing for owner-occupied hotels, below-market fixed rate on the CDC portion, 25-year term

SBA loans require the borrower to be an active operator, not a passive investor. They are ideal for the small business owner purchasing a franchise hotel as their primary business.

CMBS (Conduit) Loans

For larger hotels (above $5 million), CMBS provides non-recourse fixed-rate financing:

  • LTV: Up to 65-70% for stabilized branded hotels
  • Rate: 6.00%-7.50% fixed, 5-10 year term
  • Non-recourse with carve-outs
  • Requires: Minimum 1.35x DSCR, brand affiliation, STR report showing competitive set performance

Bridge Loans for Hotels

Hotel bridge loans fund acquisitions, renovations (PIPs — Property Improvement Plans), or transitional situations:

  • Rate: SOFR + 350-600 bps (9.00%-12.00% all-in in 2026)
  • LTV: 60-70% of purchase price
  • Term: 12-36 months, interest-only
  • Best for: Post-acquisition PIP completion, re-branding, or stabilization before permanent financing

Brand Affiliation: A Critical Factor

Most lenders strongly prefer — and many require — a recognized brand flag (Marriott, Hilton, IHG, Choice Hotels, Wyndham, Hyatt). Branded hotels command lower interest rates, higher LTVs, and more lender options than independent properties.

Franchise agreements typically run 10-20 years and include performance standards, renovation requirements (PIPs), and royalty fees of 4-8% of gross revenue. When acquiring a branded hotel, review the franchise agreement carefully — a PIP requirement of $2-5 million can significantly impact your return assumptions.

Construction Financing for New Hotels

Ground-up hotel construction is the most challenging hospitality financing scenario. Most lenders require:

  • 35-45% equity contribution
  • Signed franchise agreement with a recognized brand
  • Experienced hotel developer/operator as sponsor
  • Feasibility study from an independent hospitality consultant
  • Construction rate: SOFR + 400-600 bps

How CLS CRE Approaches Hotel Financing

Hotel financing requires a broker who understands the hospitality sector deeply — not just commercial real estate broadly. We analyze STR reports, franchise agreements, and operating statements to present your deal in the best possible light to the most receptive lenders.

Our hospitality lending relationships span SBA lenders for smaller owner-operated deals, regional banks for mid-market branded properties, CMBS conduit lenders for larger non-recourse needs, and bridge lenders for transitional assets. If you own or are acquiring a hotel or hospitality property, connect with CLS CRE for a thorough financing analysis.