Hotel loans: Best financing options for hotels in 2026

The hotel sector is proving to be resilient and financing for large and luxury property is especially strong, according to a February 2026 report by JLL, a global commercial real estate and investment management company.

If you’re trying to buy a hotel, you’ll need to be aware of the unique requirements for these loans. Hotels are operating businesses, and lenders often evaluate them that way. That means approval may depend on more than the property's appraised value. It may require management experience, a strong history of revenue, affiliation with a known brand, and more.

For first-time buyers and smaller investors in particular, walking into the wrong lender with the wrong loan type is one of the most avoidable and costly mistakes in the process. Once you understand how hotel financing actually works, which loan fits what you’re trying to do, you're in a better position to find financing that works.

This guide covers the full picture: Which types of hotel loan may fit your situation, how each one is structured, and what lenders often want to see before they say yes.

Click here to jump to the glossary of terms related to hotel financing located at the bottom of this article.

Best hotel loans and financing options by situation

Start with your goals, qualifications, and how you’ll use funding to help pick the loan type that’s most likely to fit. A first-time hotel buyer, a seasoned operator refinancing a stabilized property, and a franchise owner facing a brand-mandated renovation are each solving a different problem, and the loan that works for one may be entirely wrong for the other.

Use the table below as a starting point for your research, then read the loan-type detail in the next section to understand the terms and qualification requirements for whichever options apply to your situation.

Types of hotel loans

There’s a general rule of thumb when it comes to small business lending: the faster and easier it is to get a loan, the more it usually costs. That’s true of hotel financing options as well.

SBA loans and conventional bank loans may offer some of the lowest rates, but they can come with more significant documentation requirements and timelines of 30 to 90 days or longer. Bridge and hard money lenders can move quickly — but that speed comes with higher rates, origination fees, and shorter terms. Every hotel loan involves a tradeoff between cost, speed, and flexibility. 

SBA 7(a) hotel loans

An SBA 7(a) loan can be one of the most flexible hotel business loans available, and for smaller acquisitions and first-time buyers, it's often a good place to start. Unlike commercial real estate loans that may cover only the property purchase, a 7(a) loan can combine multiple uses into a single closing for the real estate, working capital, furniture, fixtures and equipment (FF&E), and renovation costs. 

When SBA 7(a) can be a strong fit for hotels

The 7(a) can work particularly well for smaller hotel acquisitions in the $5 million or less range where the borrower needs a loan that does more than cover the purchase price. It's especially useful for first-time hotel buyers because the SBA's eligibility criteria may be more accessible than conventional lenders' standards, which may require significant prior hotel ownership or management experience. If you're buying a property that also needs initial working capital and FF&E upgrades, a single 7(a) loan may be able to handle all three at one closing. 

Personal guarantee and documentation depth

SBA 7(a) loans require a personal guarantee from all owners with 20% or more ownership. On the documentation side, plan to provide at minimum: two to three years of personal and business tax returns; a personal financial statement; the purchase agreement or refinance terms; hotel operating history (STR data, if available); and a business plan. Underestimating the documentation requirements is one of the most common mistakes SBA hotel loan borrowers make. If you're not organized well before you apply, you'll extend your timeline by weeks and the deal may not close. 

Learn about common SBA loan requirements here

Common mistakes to avoid

Two pitfalls come up regularly with SBA hotel loans. First, borrowers underestimate the timeline; even a well-prepared SBA application typically takes 30 to 90 days to close, and any missing documentation can stretch that out. 

Second, borrowers with strong personal credit sometimes expect it to carry the application, but the SBA and its lenders underwrite both the borrower and the business. A hotel with thin operating margins or below-market occupancy will face hard scrutiny regardless of the investor’s personal financial profile.

SBA 504 hotel loans

The SBA 504 program is built for long-term, fixed-rate real estate financing. For hotel buyers who qualify and can handle the higher equity requirement, it's consistently one of the lowest-cost options in the market.

“SBA 504 loans are often a strong fit for owner-operated hotel, motel, and self-storage projects, particularly when the borrower plans to own and operate the property long-term,” says Kurt Chambliss, chief business development officer of TMC Financing, the top SBA 504 lender by both volume and loans originated in the U.S. 

“These loans work well for acquisition, construction, or renovation projects that benefit from long-term, fixed-rate financing and lower down payment requirements compared to conventional loans,” he says. 

How the 504 structure works for hotels

The SBA 504 uses a three-party structure: a traditional lender (typically a bank) provides 50% of the financing; a Certified Development Company (CDC) backed by the SBA provides 35% to 40%; and the borrower contributes the remainder. For most businesses, that borrower contribution is 10%. Hotels require a larger borrower contribution, though, because hotels are classified as special-purpose or limited-use properties, meaning they're harder to sell or repurpose if the business fails.

If you're an established hotel operator in business for at least two years, the required down payment is 15%. If you're acquiring your first hotel with no prior hotel operating history, the required down payment is 20%. 

The CDC portion carries a fixed interest rate: See current SBA loan rates here. 

Common mistakes

A few issues can arise specifically for hotel 504 borrowers, though some of these are common for other types of loans as well. If the property is franchise-affiliated, the franchise agreement must be reviewed and the brand must appear on the SBA's approved franchise directory. Environmental review requirements can add time to the timeline, particularly for older properties. 

Renovation budgets submitted at application need to be thorough, as scope changes after approval can complicate or delay closing. Borrowers who are new to the 504 process should also be aware that its prepayment penalty extends on a declining basis for 10 years, which is longer than the 7(a) at three years.

“Common mistakes include involving an SBA lender too late, using overly optimistic projections, and underestimating the importance of management experience, particularly in hotel operations,” says Chambliss. “Early planning and conservative assumptions help avoid delays.”

SBA 7(a) vs. SBA 504 for hotels

Bank and credit union hotel loans

Conventional bank and credit union loans are often the backbone of hotel financing for stabilized properties with strong operating histories.

“Conventional business loans require a strong borrower who is looking to acquire a well performing existing property or expand,” says Chris Cornella, vice president of business development at US Professional Funding. “You can also use it to refinance your current SBA loan to a conventional loan to get a lower interest rate. If the property has declining revenues, a strong explanation and business plan to revamp the property will give you a much higher chance at securing financing.”

Qualifications

Bank hotel loans are best suited to borrowers who can demonstrate all three of the following: a stabilized, cash-flowing property; a strong personal credit and net worth profile; and prior hotel ownership or management experience. 

Lenders typically require a minimum debt service coverage ratio of 1.25x or higher, meaning the property's net operating income must cover the annual debt service by at least 25%. LTV expectations for hotel loans average around 60–65%, meaning most borrowers should expect to have 35% to 40% equity in the deal, either as a down payment or accumulated through appreciation and paydown.

What banks want to see

Beyond the numbers, conventional lenders often evaluate the sponsor's management plan, the strength of the franchise or brand relationship, and the hotel's competitive positioning in its market. Expect standard financial covenants, regular operating statement reporting, and reserve account requirements as conditions of the loan. The predictability of conventional bank financing, including fixed amortization schedules, clear covenant structures, and stable long-term lender relationships, often make it attractive for operators who qualify. 

Bank loans often take time and can run 45 to 90 days with a conventional bank. Complex deals, new-to-bank relationships, or properties requiring environmental review can extend significantly beyond that.

Construction and construction-to-permanent loans

Building a new hotel, adding significant capacity, or extensively remodeling a property requires a financing structure that most hotel buyers never encounter on acquisitions. Construction loans involve draws at various milestones: instead of receiving the full loan amount at closing, borrowers draw funds in stages as construction milestones are verified through independent inspections.

How draws, inspections, and contingencies work

With these types of loans, lenders disburse funds in a series of draws tied to construction progress confirmed by independent inspections. Contingency reserves are standard to protect against cost overruns. Once the property reaches the certificate of occupancy and meets a predetermined occupancy or income stabilization threshold, the construction loan converts to permanent financing, and switches to the long-term amortization and rate structure.

What construction lenders require

Construction and construction-to-permanent lenders apply some of the most demanding underwriting standards in hotel finance. You’ll likely need to work with an experienced developer or sponsor with a verifiable track record on comparable hospitality projects; a pre-committed franchise or brand agreement in place prior to funding; a detailed feasibility study for the market; and an equity contribution significantly higher than a standard acquisition loan — typically 25% to 30% or more of total project costs. Lenders will also often evaluate whether the local market can absorb the proposed supply and whether the intended brand or flag is appropriate for the area.

Read Nav’s guide to construction loans

Bridge loans

Bridge loans are designed for situations where a hotel needs short-term capital to move from where it is now — an acquisition or a renovation, for example — to the next stage of a permanent asset with long-term financing. 

When bridge loans make sense for hotels

Bridge loan financing often fits three primary hotel scenarios: 

1. Acquisitions where the buyer needs to close faster than a traditional lender can approve and close the loan.
2. Repositioning plays where the property requires renovation or rebranding before it can support permanent debt underwriting. 
3. Renovation projects that need a construction holdback structure before the property's income can support a standard mortgage. 

Bridge loan lenders pay close attention to the borrower's business plan and track record on comparable projects. 

“The spot where most borrowers get stuck is occupancy,” says Cornella. “Lenders ideally want to see above a 60% occupancy on acquisitions.”

How bridge loans are typically structured

Bridge loans usually run 12 to 36 months, often with an interest-only period followed by amortizing payments. Rates typically range from approximately 8% on the low end to 15% for smaller or riskier transactions. LTV generally runs 50–70% depending on property condition and exit risk. The fastest bridge lenders can close in as little as two weeks.

Bridge exit plan checklist

Evaluate whether a bridge loan may be the right choice with this checklist:

• Refinance target: Which permanent loan are you exiting into, and what DSCR and occupancy does that lender require at the time of application?
• Stabilization milestones: What operational or renovation benchmarks must the property hit before the permanent lender will underwrite it?
• Timeline buffer: Have you built in margin for construction delays, permit issues, or a slower-than-expected revenue ramp? Bridge extension fees can add up quickly if you miss your exit window.

Hard money and private debt

Hard money and private debt are short-term financing tied to collateral. They are often the fastest and most flexible capital available in the real estate market, but they can also be expensive. 

When hard money makes sense

Hard money loans and private debt are often helpful for distressed hotel acquisitions where the property doesn't cash-flow in its current state; time-sensitive deals where the window for conventional or SBA financing is simply too long; and situations where the borrower's profile (such as credit, experience, or liquidity) don't qualify for other loan options. 

Private lenders underwrite the collateral first and the borrower second, which means a strong asset acquired at the right price may get funded even when banks would say no. 

The true cost

Interest rates on hotel hard money and private debt loans are typically higher than conventional loans, and there are often origination fees of at least one to three points on the loan amount, making the all-in cost of capital significant. Short-term extensions are available from many private lenders but can come with additional fees. If the planned exit doesn't materialize on schedule, costs compound quickly.

Watch out for

• Long-term holds without a clear refinance path or defined sale timeline
• Properties where the renovation scope is not fully defined as cost overruns against a hard money loan are extremely expensive
• Situations where borrower equity is thin

CMBS hotel loans

Commercial mortgage-backed securities (CMBS) loans are pooled, packaged, and sold to institutional investors. For hotel borrowers, that structure creates both the biggest advantage and the most significant complication of any loan type: you get a non-recourse, high-LTV loan, but you give up flexibility for the entire loan term.

Non-recourse and what it actually means

CMBS loans are non-recourse which means the lender's primary remedy in a default is the property, not the borrower personally. There is no personal guarantee on property performance. The trade-off is a set of provisions (which may be referred to as carveouts or “bad-boy guarantees”) that can be triggered in situations of specific borrower actions such as fraud, environmental violations, unauthorized transfers, failure to maintain insurance, failure to pay taxes. These are negotiated at origination — read them carefully. In some CMBS documents, franchise agreement termination and PIP non-compliance can also be structured as recourse carveouts.

CMBS requirements specific to hotels

CMBS hotel loans often require a minimum FF&E reserve (for example, 4% of gross revenue), collected monthly and held by the servicer. A lockbox or sweep bank account is established at closing. Secondary liens are generally prohibited without the lender’s consent as that increases risk. 

All principals are subject to ongoing net worth and liquidity requirements; for example, at least 25% of the loan amount in net worth and at least 5% in liquid assets. Branded (flagged) hotels generally qualify at lower DSCR thresholds than independent or unflagged properties, reflecting the more predictable demand and revenue that comes with a recognized brand.

Why CMBS is hard to exit early

Once a CMBS loan closes, it is sold into a securitization trust and serviced by a third-party loan servicer, and is not held on the book of the bank that originated it. That matters if you want to refinance it. 

CMBS loans typically carry a two-year lockout period during which prepayment is prohibited. After the lockout, borrowers must either defease the loan (replace the collateral with a portfolio of government securities) or pay a yield maintenance penalty, both of which can be substantial. These are not loans you take out expecting to refinance in two or three years.

CMBS may be a good fit if

• The property is stabilized with 2+ years of operating history and consistent RevPAR (revenue per available room)
• You plan to hold the asset for the full loan term (5, 7, or 10 years)
• You want non-recourse financing at a higher LTV than a conventional bank will offer
• You have experienced hotel management in place or can engage a qualified external operator with a multi-property track record

FF&E and equipment financing

Furniture, fixtures, and equipment (FF&E) represent a significant and recurring capital need for hotel owners that is often better financed separately from the real estate. FF&E financing treats these assets as collateral in their own right, allowing borrowers to use the real estate loan capacity for the property itself.

What qualifies as hotel FF&E

Think about everything inside the walls of the hotel. That’s where hotel FF&E comes in. It can cover a range of these capital expenditures, including guest room furniture, beds and bedding packages, laundry equipment, kitchen and food service equipment, security and access control systems, and technology infrastructure including property management systems and in-room entertainment. These assets are typically replaced on a rolling cycle — and major refresh cycles often coincide with brand PIP requirements. (In other words, the franchise requires these periodic updates.)

When to separate FF&E from real estate financing

If you're financing a hotel acquisition and face a simultaneous need for FF&E, keeping the two credit facilities separate creates a cleaner capital structure. The real estate loan covers the property; the FF&E facility covers the equipment. Think about it this way: you probably wouldn’t get a short-term loan to finance your home, and you wouldn’t likely use a 30-year mortgage to finance the furnishings in your home. The same principle applies here. 

Common hotel upgrades and best financing match

Working capital loans and lines of credit

Hotels live with revenue volatility in a way that most other commercial real estate investments don't. A beach resort that generates the majority of its revenue in three peak months, or a ski lodge that goes quiet in the fall, often needs a fundamentally different approach to cash management than a fully leased office building. Working capital financing exists to cover those gaps.

Best uses for hotel working capital financing

Working capital loans and lines of credit are most valuable for seasonal cash flow shortfalls, payroll ramps ahead of peak season, marketing campaigns targeting shoulder seasons, and unexpected repair or operating expenses that arise between peak revenue periods. Unlike real estate loans, these facilities are underwritten primarily on operating cash flow and the business's creditworthiness rather than on real property collateral.

How repayment cadence affects hotel operators

A critical detail for hotel borrowers considering short-term working capital products is how repayment often works. Some products use daily or weekly automatic payments drawn directly from business bank accounts. For a hotel in its off-season with minimal daily revenue, the wrong payment cadence can create cash flow stress. Before committing, confirm how payments work, and model the impact across your slowest months.

How to get a hotel loan step by step

Hotel loan applications may require more preparation than other types of business loans because lenders are often evaluating both the property and the operating business simultaneously. Working through these steps before approaching a lender can help improve your approval odds and shorten your timeline.

Step 1: Define your goal and qualifications

This can feel a little like a “cart before the horse” step if you’re still shopping if you don’t know the exact property you want to buy. But the more specific you can be about how much you need, what you need it for, and when you need it, the easier it will be to find the right financing. 

Step 2: Choose the right loan type

Use the situation table at the top of this article to help identify options. Some key questions: 

• Is the property already operating with demonstrated cash flow? 
• How much money can you put down?
• What is your liquidity profile? (Extra funds available)
• What are your metrics? (Occupancy rate, revPAR, DSCR) 
• Is a PIP required?
• Will the hotel operate under a brand?
• Do you have prior hotel management experience or can you bring on someone who does? 
• How much time do you have to close? 

The answers will help you narrow down possible options.

Step 3: Assemble documents before you apply

Most hotel lenders require the following before issuing a term sheet or conditional approval:

• Two to three years of personal and business tax returns
• Personal financial statement (assets, liabilities, and net worth)
• Hotel operating statements (trailing 12 months at minimum; 3 years preferred)
• STR data showing RevPAR, ADR, and occupancy trends vs. the competitive set
• Franchise agreement or letter of intent, if applicable
• Renovation budget and contractor bids, if renovation is part of the transaction
• Purchase and sale agreement, for acquisitions
• Pro forma projections for the first 3–5 years of ownership

Step 4: Find the right lenders

Not every lender is active in hotel financing. You'll need to work with a lender that finances these types of properties.  Some community and regional banks are active in local hotel markets. Loans brokers with experience in this type of financing can also help connect you to the right lender.

Step 5: Appraisal

Keep in mind that hotel appraisals can be different from standard commercial real estate appraisals. An operating hotel is typically appraised as a going concern (a.k.a. complete value), which means the appraisal may need to capture the real estate value, the FF&E, and the intangible business value together. A fee simple real estate appraisal value appraisal only looks at the value of the real estate. Talk with your lender about which will be used.

Step 6: Respond quickly during underwriting

Once your application is submitted, your responsiveness is one of the single biggest factors in the timeline. Hotel lenders regularly request additional documentation, updated financials, clarification on projections, or third-party reports during the review process. Delays in responding are one of the primary reasons hotel loan closings can be held up.

Step 7: Navigate due diligence and close

The due diligence period for the typical hotel loan involves: an appraisal (going concern or fee-simple depending on loan type and property status), a Phase I environmental site assessment, a property condition report, and franchise-related reviews. 

For SBA loans, the lender will need to confirm SBA loan qualifications and franchise eligibility. For CMBS, expect title and UCC searches, lockbox account establishment, and lender's counsel review as standard items. Allow 30 to 90 days for most institutional loans; bridge lenders or hard money lenders may be able to close in a couple of weeks. 

What is a hotel loan?

A hotel loan is a form of financing that uses a hotel property, and often its operating business, as collateral and for underwriting support. The term hotel loan can cover a range of products, and understanding how they differ starts with recognizing that hotel financing falls into two distinct categories.

The two main buckets of hotel financing

The first is real estate-backed financing, where the primary collateral is the physical property. These loans place significant weight on the property's appraised value, LTV ratio, and income coverage ratios.

The second is business-backed financing, where underwriting is based heavily on the operating business's cash flow and creditworthiness.

In practice, most hotel lenders consider both at once. Unlike a triple-net leased retail building — where the rent roll largely drives the underwriting — a hotel's performance depends on management quality, seasonal demand patterns, brand affiliation, and competitive position in its market. That makes virtually every hotel loan, to some degree, both a real estate underwriting and a business underwriting.

What hotel loan proceeds can be used for

Hotel loan funds can cover a wide range of needs: purchasing an existing property, refinancing an existing mortgage to improve terms or extract equity, funding a brand-mandated Property Improvement Plan, replacing FF&E on a capital cycle, constructing a new hotel, or covering working capital gaps during slow seasons..

Why lenders treat hotels as operating businesses

A lender making a loan against a stabilized apartment building knows that building will likely generate rent even if ownership changes tomorrow. A hotel that loses its management team, its franchise flag, or its marketing momentum can see its value deteriorate rapidly. That operational risk is why hotel underwriting goes significantly deeper into management quality, brand relationships, and operating performance.

Hotel loans vs. commercial real estate loans

There is a difference between a hotel loan and a standard commercial real estate loan.

“One of the biggest mistakes I see is that borrowers look at hotel financing similar to how they would look at apartment financing,” says Nick Panize, president and CEO of Westgate Capital Ventures. “The underwriting is completely different. They don’t calculate the seasonality of hotels.” He also warns that the costs of running a hotel as a business make these more than just a real estate play. 

Going concern value vs. fee-simple value

A fee-simple basis just looks at what a buyer would pay for the building and land, assuming it's vacant or leased at market rates. Hotels that are actively operating are almost always valued as going concerns, which means the appraisal captures the real estate value, the FF&E, and the intangible value of the operating business together. A well-performing hotel can carry a going concern value substantially higher than its fee-simple real estate value alone.

When a hotel is closed, being sold dark, or acquired for conversion to another use, fee-simple appraisals may be used. The difference between the two values has a direct impact on how much a lender will fund. Lenders using only the real estate as collateral should order a fee-simple appraisal specifically. 

Operating performance is underwritten, not just leases

A conventional office or retail CRE loan is largely underwritten on the lease structure — who are the tenants, what are the terms, what is the contractual rent? Hotel underwriting can't rely on that. Hotel revenue is generated one night at a time, with no guaranteed future occupancy. 

Lenders evaluate RevPAR trends, ADR penetration against the competitive set, operating expense ratios, management quality, and the sponsor's track record on comparable assets. The income capitalization approach — projecting net operating income and applying a market cap or discount rate — is the primary hotel valuation method used in financing underwriting.

Ways to use hotel loan funds

Hotel financing can serve a wide range of purposes across the ownership lifecycle. The primary categories break into five buckets: acquisition, renovation or PIP, construction, operations, and refinancing.

How to qualify for a hotel loan

Qualifying for a hotel loan involves multiple components: the borrower, the property, and the deal structure. Understanding what lenders look for in each area can put you in a significantly stronger position to package an approvable application.

Borrower and sponsor criteria

Lenders may look at a number of factors when evaluating your loan application. 

• Credit profile: SBA loans generally require acceptable credit with no specific minimum credit score (though lenders often want to see personal credit scores of at least 680). Similarly, most institutional hotel lenders look for personal credit scores in the mid-600s or higher as a baseline, and stronger profiles improve terms. Hard money loans and CMBS lenders focus less on personal credit scores and more on the deal.
• Net worth and liquidity: CMBS lenders specifically require principals to maintain a net worth of at least 25% of the loan amount and liquid assets of at least 5% of the loan amount. “Having a strong personal liquidity profile is very important to receiving funding,’ says Cornella. “Lenders love to see a cushion in the bank as post closing liquidity.”
• Hotel management experience: This is the factor that most surprises first-time buyers. Lenders often want to see prior hotel ownership or management experience, or a commitment to engage a qualified external management company. SBA programs are more accessible for first-timers but still evaluate the management plan carefully.

“The bank usually likes to see someone with experience,” says Panize. A borrower without experience in the hotel industry may be able to get past that requirement if they will bring someone into the business who does, perhaps as one of the members of the LLC, for example. 

“Having experience in the hotel/motel or self storage industry plays a huge role in getting the financing you need,” says Cornella. “Many first time hotel operators look at a distressed property to turn around but underestimate the real costs involved. Providing official contracting bids, not estimates, gives a much higher chance of approval.”

Property and asset criteria

The property must independently pass underwriting. The primary metrics:

• Debt service coverage ratio (DSCR): Hotel lenders typically require a minimum DSCR of 1.25x–1.35x, meaning the property's net operating income must exceed annual debt service by at least 25–35%. Hospitality properties require higher coverage ratios than most other commercial asset classes because hotel revenue is far more volatile than lease income from a stabilized office or retail tenant.
• Loan-to-value (LTV): Average LTV across commercial real estate lenders runs approximately 63%, meaning most hotel loans require at least 37% equity in the deal. CMBS lenders extend to 75% LTV for the right property; SBA programs can reach 80–85% for qualified buyers.
• Brand and franchise affiliation: Branded (flagged) hotels generally qualify for more favorable loan terms than independent or unflagged properties, reflecting the more predictable revenue and demand profile that comes with a recognized brand
• RevPAR and STR data: Most institutional hotel lenders require STR market data showing the property's RevPAR, ADR, and occupancy penetration against its competitive set. This data is a central input into the income-based underwriting model.

“Location is always a primary driving factor,” says Panize. 

Deal and structure criteria

Beyond the borrower and property, lenders evaluate the transaction structure:

• Down payment and equity injection: Ranges significantly by program — from as little as 15-20% for an SBA loan to 20–30%+ for construction deals or conventional financing. 
• Reserve accounts: Most institutional lenders (and CMBS in particular) require funded reserve accounts for FF&E maintenance, property taxes, and insurance — often at around 4% of gross revenue. 
• Franchise health: A franchise agreement in good standing with a renewal option is a significant positive underwriting factor. Expired or at-risk agreements — or an upcoming PIP without a funded plan — are red flags.

How much do hotel loans cost?

Hotel loan costs vary considerably by loan type, property quality, and borrower strength. The general rule in small business lending holds: the cheaper the financing, the more it often takes to qualify and the longer it probably takes to close.

SBA loans may carry fixed or variable rates, while SBA 504 rates carry fixed rates for the SBA portion of the loan. See current SBA loan rates here. 

Conventional bank hotel loans often carry low rates but can vary by lender and by  CMBS loan rates are fixed for the loan term and set at origination based on the 10-year Treasury yield plus a credit spread.

Bridge loans are short-term loans with rates that are usually slightly higher than long-term loans, but lower than alternative financing. Hard money is usually more expensive with higher rates than the other types of loans listed here. 

Other costs (depending on the type of loan or lender) may include points, origination, packaging and/or underwriting fees, appraisals, environmental reviews, and draw fees. There may be prepayment penalties as well. 

See Nav’s guide to small business loan rates. 

ADR (Average Daily Rate): The average revenue earned per occupied room per night. A key measure of a hotel's pricing strength, used by lenders to benchmark performance against comparable properties.

Amortization: The process of paying down a loan through scheduled principal and interest payments over time. A fully amortizing loan reaches a zero balance at the end of its term; a partially amortizing loan ends with a balloon payment.

Bad-boy carveouts: Specific borrower actions (such as fraud, unauthorized transfers, or failure to pay property taxes) that can convert a non-recourse loan to full personal recourse. Standard in CMBS hotel loans.

Balloon payment: A large lump-sum payment due at the end of a loan term. Common in CMBS and some conventional hotel loans, where the loan amortizes on a 25 to 30-year schedule but matures in five, seven, or 10 years.

Bridge loan: A short-term loan (typically 12 to 36 months) used to finance a hotel acquisition, renovation, or repositioning while the property stabilizes or until permanent financing can be secured.

Capital stack: The full picture of how a hotel deal is financed, showing each layer of funding from the most senior (first mortgage) to the most junior (equity). A simple stack might be: senior loan + borrower equity. A complex one might add mezzanine debt in between.

CDC (Certified Development Company): A nonprofit organization certified by the SBA to administer the 504 loan program. The CDC provides the SBA-backed portion of a 504 loan (typically 35% to 40% of total project costs).

CMBS (Commercial Mortgage-Backed Securities): A type of commercial loan where the lender packages the mortgage with others and sells it to institutional investors. CMBS hotel loans are non-recourse and typically fixed-rate, but come with strict prepayment penalties and are serviced by a third party after closing.

Defeasance: A CMBS prepayment method in which the borrower replaces the loan collateral with a portfolio of government securities that generate the same cash flows as the original loan. A complex and often expensive process.

DSCR (Debt Service Coverage Ratio): Net operating income divided by annual debt service (principal and interest payments). A DSCR of 1.25x means the property generates $1.25 in NOI for every $1.00 of debt payment. Most hotel lenders require a minimum of 1.25x to 1.35x.

FF&E (Furniture, Fixtures, and Equipment): The movable assets inside a hotel: guest room furniture, beds, laundry equipment, kitchen equipment, technology systems, and similar items. FF&E is replaced on a capital cycle and is often financed separately from the real estate.

Flagged hotel: A hotel affiliated with a recognized brand or franchise (Marriott, Hilton, IHG, etc.). Flagged hotels typically qualify for more favorable loan terms than independent (unflagged) properties due to their more predictable demand and revenue patterns.

Going concern value: The appraised value of an operating hotel that combines the real estate, FF&E, and intangible business value (brand goodwill, management quality, revenue trajectory). Typically higher than fee-simple real estate value alone. Most lenders use a going concern appraisal for operating hotels.

Fee-simple value: The value of a property as real estate alone, independent of the operating business. Used for hotels that are closed, being sold dark, or acquired for a change of use.

Hard money loan: A short-term, collateral-first loan from a private lender, typically at higher interest rates (10% to 15%) and with shorter terms (12 to 24 months). Used for distressed acquisitions or when the borrower doesn't qualify for institutional financing.

Interest-only period: A phase of a loan during which the borrower pays only interest, with no principal reduction. Common in bridge loans and during the construction phase of construction-to-permanent loans.

LTV (Loan-to-Value): The loan amount as a percentage of the property's appraised value. A $7M loan on a $10M hotel = 70% LTV. Lower LTV means more borrower equity in the deal.

NOI (Net Operating Income): Total hotel revenue minus operating expenses (excluding debt service, depreciation, and income taxes). The primary income figure used in hotel underwriting and appraisal.

Non-recourse loan: A loan where the lender's remedy in a default is limited to the collateral property; the borrower is not personally liable. CMBS loans are non-recourse, subject to bad-boy carveouts.

Personal guarantee: A borrower's personal commitment to repay a loan if the business cannot. Required by SBA 7(a) and 504 programs for all owners with 20% or more equity. Makes a loan full recourse.

PIP (Property Improvement Plan): A formal renovation requirement issued by a hotel brand or franchisor. PIPs typically occur on a scheduled cycle (every 5–15 years) or are triggered when a property falls below brand standards. 

RevPAR (Revenue Per Available Room): Total room revenue divided by total available rooms (occupied and unoccupied). The standard hotel performance metric used in lender underwriting. Calculated as ADR × occupancy rate.

STR data: Benchmarking data from CoStar/STR, the primary hotel performance data provider. Lenders commonly require STR reports showing a property's RevPAR, ADR, and occupancy penetration relative to its competitive set.

Frequently asked questions