Hospitality Financing Guide: Hotel Loans & PIP Funding

Modern hotel building showcasing hospitality financing for hotels and lodging properties — Modern lodging facility illustrating hotel financing options, capital structures, and underwriting for hotel owners.

Hospitality financing is the debt used to buy, build, refinance, or renovate hotels, motels, and other lodging properties. Because a hotel re-leases its rooms every night, lenders treat it as an operating business as much as real estate, and they size loans on trailing cash flow, brand strength, and market performance rather than on long-term leases.

What Hotel Financing Covers

Hotel loans fund four broad needs: acquisitions of existing properties, refinancing of maturing debt, ground-up construction, and capital improvements such as brand-mandated property improvement plans (PIPs). Each need fits a different part of the capital market, and the right choice depends on how stable the property’s income is today.

Stabilized, flagged hotels with two or more years of steady revenue can access long-term fixed-rate debt. Properties in transition, such as a hotel changing brands, coming out of a renovation, or recovering from weak occupancy, usually start with shorter bridge financing and move to permanent debt once performance is proven. Owner-operators who run the hotel themselves can often use SBA programs, because a hotel is treated as an owner-occupied business.

Key Takeaways

Most hotel lenders cap leverage at 55% to 70% loan-to-value, lower than for apartments or industrial property.
Minimum debt service coverage typically runs 1.30x to 1.50x on trailing-twelve-month net operating income.
SBA 7(a) and 504 loans can reach 85% to 90% of cost for owner-operators who meet program rules.
Lenders look closely at RevPAR, occupancy, and average daily rate against a competitive set, usually from a STR report.
A brand-required PIP can be financed with the loan, but lenders will want a budget, a timeline, and often a reserve.

Hotel Loan Options Compared

The table below summarizes the main financing types used for lodging properties. Figures are typical ranges for 2026 and vary with brand, market, and sponsor experience.

Loan type	Typical leverage	Term	Rate structure	Best fit
Bank or credit union loan	55%–65% LTV	5–10 years, 20–25 year amortization	Fixed or floating	Stabilized flagged hotels with local sponsors
SBA 7(a)	Up to 90% of cost	Up to 25 years	Prime plus a spread, mostly variable	Owner-operators, smaller hotels, change of ownership
SBA 504	Up to 85%–90% of cost	20–25 year fixed second lien	Bank first lien plus fixed-rate CDC debenture	Owner-operators buying or building larger properties
CMBS conduit loan	60%–70% LTV	5–10 years, 25–30 year amortization	Fixed, non-recourse	Larger stabilized hotels with strong history
Life insurance company loan	50%–60% LTV	5–15 years	Fixed, low spread	High-quality, low-leverage hotels in strong markets
Bridge loan	65%–75% of cost	12–36 months	Floating, SOFR-based	Repositioning, rebranding, or lease-up of a new hotel
Construction loan	55%–65% of cost	24–36 months plus extensions	Floating, interest-only	Ground-up hotels with a signed franchise agreement

Owner-operators should read our owner-user and SBA property finance guide and the SBA guide for hotel and specialty properties. Sponsors with a transitional property can compare options in our commercial bridge financing guide.

How Lenders Underwrite a Hotel

Hotel underwriting starts with the property’s operating statements, usually monthly profit and loss reports for the past three years plus the trailing twelve months. Lenders then check those results against the market and the brand.

Performance metrics

Occupancy: the share of available rooms sold. Most lenders want to see 60% to 70% or better for a stabilized select-service hotel.
Average daily rate (ADR): room revenue divided by rooms sold.
RevPAR: room revenue divided by rooms available, the single most watched number. A RevPAR index above 100 in the STR report means the hotel beats its competitive set.
Departmental and undistributed expenses: lenders apply a management fee of about 3% of revenue and a furniture, fixtures and equipment (FF&E) reserve of about 4% of revenue, even if the owner self-manages.

Sponsor and brand factors

Lenders review the borrower’s hotel operating history, liquidity (often 10% of the loan amount in cash after closing), and net worth. They also review the franchise agreement: remaining term, brand standards, and any comfort letter the franchisor will issue to protect the lender. Independent hotels can be financed, but leverage is usually 5 to 10 points lower than for a comparable flagged property.

Worked Example: Sizing a Select-Service Hotel Loan

Consider a 110-room select-service hotel with these trailing-twelve-month results:

Occupancy 71%, ADR $142, giving RevPAR of about $100.80
Room revenue: 110 rooms × 365 nights × $100.80 ≈ $4,047,000
Other revenue (parking, market, meeting space): $153,000, for total revenue of $4,200,000
Net operating income after a 3% management fee and 4% FF&E reserve: $1,260,000 (a 30% margin)
Appraised value at an 8.75% cap rate: about $14,400,000

A bank lender limiting leverage to 65% LTV would cap the loan at about $9,360,000. Now test cash flow: at a 7.25% rate with 25-year amortization, annual debt service on $9,360,000 is about $812,000, a DSCR of 1.55x. That clears a 1.40x minimum, so value, not cash flow, is the limit here. If NOI fell 15% to $1,071,000, DSCR would drop to about 1.32x, which is why lenders often stress-test RevPAR before they commit.

The same hotel bought by an owner-operator under SBA 504 could be financed with roughly 50% from a bank first lien, 40% from the CDC debenture, and 10% equity, which cuts the cash needed at closing from about $5 million to about $1.44 million.

PIP and Renovation Financing

When a hotel changes hands or renews its franchise, the brand usually issues a property improvement plan. PIP costs for select-service hotels commonly run $15,000 to $40,000 per room, and full-service renovations can exceed $60,000 per room. Lenders can fund PIP work in three ways:

Built into the acquisition loan, with the PIP budget held in a reserve and released as work is completed.
Through a bridge loan sized on the as-renovated value, refinanced into permanent debt once results improve.
Through SBA 7(a) or 504, where renovation costs are eligible project costs alongside the purchase price.

Expect lenders to require a contractor bid, a schedule that fits within the brand’s deadline, and a contingency of 5% to 10% of the budget.

Typical Timeline From Application to Closing

Stage	Typical duration
Initial review and term sheet	1–2 weeks
Appraisal, environmental, and property condition report	3–5 weeks
Franchise comfort letter and PIP review	2–4 weeks, often in parallel
Credit approval	1–3 weeks
Legal documents and closing	2–3 weeks

Bank and bridge loans often close in 45 to 75 days. SBA and CMBS loans more often take 60 to 120 days. Starting the franchise comfort letter early is the easiest way to avoid delays.

Frequently Asked Questions

What down payment is needed to buy a hotel?

Conventional hotel loans usually require 30% to 45% down. Owner-operators using SBA 7(a) or 504 programs may put down as little as 10% to 15%, depending on experience and whether the property is a new build.

Can I finance an independent, unbranded hotel?

Yes, but expect lower leverage, a higher rate, and closer review of online reviews, booking channels, and the manager’s track record.

What DSCR do hotel lenders require?

Most lenders want 1.30x to 1.50x on trailing-twelve-month NOI, after deducting a management fee and an FF&E reserve.

Are hotel loans recourse?

Bank and SBA loans are usually full recourse with personal guarantees. CMBS and many life company loans are non-recourse, apart from standard carve-outs for fraud and environmental issues.

Next Steps

Gather three years of monthly operating statements, the trailing-twelve-month STR report, your franchise agreement, and any PIP. With those in hand, Thorne CRE can compare bank, SBA, bridge, and permanent options for your property and show how each affects your cash at closing and your long-term payments. For other property types, see our commercial acquisition financing guide and commercial refinancing guide.

Related hospitality financing guides

Hospitality Financing Guide: Hotel Loan Options, Underwriting & PIP Funding