Business Financing for Hotels and Lodgings in the UK

The accommodation industry in the UK has seen continued growth for many years, but that doesn’t mean everything’s rosy for those in the sector. The budgets of hotels and lodgings are under threat for a number of reasons, including several extraordinary challenges unique to the current economic climate. These include:

Rising Costs

The cost of living crisis has impacted all types of businesses, but research shows that the hospitality industry has been the worst hit, with 63% of businesses seeing significant price increases of 65% or more. These increases are occurring across the board, affecting energy costs (2022 saw energy prices rise by a massive 238%), food and inventory costs (rising 26.2% over the past two years), staff wages, and rent. All of these increase operating costs and add to operational uncertainty, leaving businesses struggling to stay profitable and struggling to plan ahead for investment.

Staffing

Staff wages are increasing in line with inflation; in April 2024 the national living wage increased by nearly 10%, and even bigger increases were seen in minimum wage levels for those aged between 16 and 20 – many of whom work in the hospitality sector as junior staff. This affects more than just budgets though, as staff retention has become a key issue. Research shows that 42% of hospitality staff leave a new role within 90 days of starting, and vacancies are persisting at an all-time high. All of this means that staff recruitment, training and retention is more difficult and costly than ever, but remains crucial for business continuity and customer service.

Occupancy Rates

The cost of living crisis, following closely on the heels of the pandemic, has impacted hotel occupancy rates across the UK; current levels of 84.8% are still below the 86.5% seen pre-pandemic. Area makes a big difference here; a return to office work means that cities and town centres are busier again, though still not reaching pre-pandemic levels, while rural accommodation businesses are struggling to keep up. Businesses with locations in multiple regions need to understand the regional variations and allocate resources accordingly; businesses with just one location need to tackle the nuances of their particular area of the country without the hope of support from other, potentially busier locations. 

Regulation

Changing government legislation poses financial difficulty for many in the accommodation sector; some of these changes are national (e.g. the Employment Act 2023), and some regional (e.g. the Scottish Minimum Unit Pricing Provisions). In addition, multiple areas across the UK are continuing to tighten rules for short-term lets, and Business Rates Relief is being cut or eliminated in Wales, Scotland and Northern Ireland. Staying on top of regulatory changes is a challenge in itself, and it’s not optional; adjusting budgets and operations to meet the changes is essential. 

So what’s the solution?

In this world of ever-tightening margins, any edge over your competitors can help – which is why so many businesses in the accommodation sector turn to external financing to manage the precarious balance between long-term investment and short-term cash flow. But before you apply for financing, you have to be sure you understand how it works and what it can do for your business. To help in this endeavour, Swiftfund has compiled answers to all the key questions about business financing for hotels. Read on to discover what type of financing might best serve your needs.

What can hotel business financing in the UK be used for?

Business financing is available to many of the nearly 10,000 accommodation businesses in the UK, and it can be used for almost any purpose, including meeting any of the challenges noted above, or for something else entirely. This includes any of the fixed or variable costs a hotel or lodging is likely to face, such as:

• Property taxes
• Rent or mortgage payments
• Insurance
• Payroll
• Technology (e.g. software, internet connection, payment processing fees, etc.)
• Utilities and energy 
• Marketing
• Inventory (e.g. housekeeping supplies, food, drink, etc.)
• Maintenance
• Refurbishment or renovation
• Purchasing a new location, expanding operations or buying a business 

How much can a hotel borrow with business financing in the UK?

The variety of possible reasons for financing means that some businesses need to borrow just a few thousand, while others need to borrow much more to meet their goals. Thankfully, business financing comes in many shapes and sizes; loans and cash advances are available from as little as £1,000 to as much as £750,000 on an unsecured basis. If providing collateral, for example property, amounts of £1 million or more may be available. 

The amount any given business can borrow depends on: 

• The business’s credit history, age, revenues, assets and existing debts
• The type of financing applied for
• The lender applied to

How much does hotel business financing in the UK cost?

The cost of business financing also varies quite a bit, and depends on the borrower’s circumstances, the type of financing, and the lender applied to. Here are some examples of the variability in costs:

• Unsecured business loans from traditional lenders have interest rates ranging from 7% to 15%, and loan fees from £0 to several hundred pounds
• Secured business loans can have interest rates as low as 4% and loan fees from £0 to several hundred pounds
• Online business loans have interest rates ranging from 7% to 50%+
• Merchant cash advances do not charge interest or loan fees, and have costs from 10p to 50p for every £1 borrowed
• Business credit cards can have APRs of between 15% and 30%

When considering the cost of any type of financing, you must take into account:

• The interest rate being charged per annum (the APR)
• The type of interest rate (e.g. fixed or variable)
• The loan term
• Any loan fees
• Other costs (e.g. factor rate, closing costs, etc.)

It is not a given that the financing with the lowest APR will be the cheapest form of borrowing, or that the cheapest is the best solution. Do your research to find the best type of financing for your business’s needs and situation.

How quickly do I have to repay hotel business financing in the UK?

The repayment term for business financing depends on the type of financing used and the details of the financing contract. Most types of financing have fixed terms, meaning that the borrowed amount (plus fees and interest) has to be repaid within a set period of time. This period can be anything from a few months to many years. The longest terms are reserved for commercial mortgages, which may last 25 years; most other forms of business loans last up to seven years. Shorter term loans are available and these usually require repayment within one month to three years. The exact term can be requested at time of application and negotiated with the lender.

Not every form of financing has a fixed term though. Merchant cash advances (MCAs) do not; instead the level of repayment for an MCA fluctuates with sales volume. In times of high sales, borrowed funds get repaid more quickly, and in times of slow sales, they get repaid more slowly. As such, the exact length of time it takes to repay an MCA depends on business performance and is not set at the start of the financing contract. This can be invaluable for businesses (including those dependent on seasonal income) unable to commit to fixed repayments over a prolonged period. 

Swiftfund specializes in MCAs; you can find out more about how they work here, or speak to one of our experts to understand how flexible financing can help protect your hotel’s cash flow.

What types of hotel business financing are available in the UK?

The variety in business financing terms is partly thanks to the variety in the business financing market; there are many different types of business financing, and each suits a different need. The most common forms of business financing currently in use in the hotel sector in the UK include:

• Traditional business loans, with borrowing amounts from £5,000 to £750,000 (if unsecured) or more (if secured), terms from one month to seven years, and APRs of 7%-15% (if unsecured) and from 4% (if secured). Applicants need to meet certain criteria, including a minimum credit score, debt-to-income ratio, expected revenue and length of operational history in order to qualify. Loan applications can take several weeks to process. A variety of loan fees may apply.
• Online business loans, with similar borrowing amounts and terms to traditional business loans, but a greater range of APRs and more flexible applicant criteria, to cater to a wider range of businesses. Application processing times are usually shorter than with traditional loans, with some offering approval within just a few days.
• Merchant cash advances (MCAs), with borrowing amounts ranging from £3,000 to £300,000, always unsecured, and with flexible repayment terms that adapt to changing sales volumes. Applicants need to meet fewer criteria to access MCAs than business loans, and the cost of borrowing is set at the start of the financing agreement; there are no interest charges. Applications are processed quickly, usually within one to two days. This option is great for restaurant and pub funding, as well as financing for retail shops. 
• Equipment loans, with borrowing amounts from £1,000 available, APRs from 6% up, and loan terms ranging from three to ten years. These loans are usually secured against the equipment being financed, and are available from equipment manufacturers and dealers, as well as third party providers. Unlike the other forms of financing mentioned here though, equipment loans can only be used to pay for equipment – no other costs can be covered by them.
• Business lines of credit, with credit limits from £1,000 to £250,000, typical APRs of 9% to 25%, and open-ended terms. Lines of credit provide borrowers with a pool of funds (up to the credit limit) that can be accessed as needed, and then repaid over time. Interest is only charged on what’s actually borrowed, and once repaid is available to use time and again as needed. As with traditional business loans, applicant criteria is strict and applications take some time to process.
• Business credit cards, with credit limits from £1,000 to £250,000, and APRs ranging from 15% to 30% on average. Many business credit cards have annual fees, and many offer benefits (such as cashback or air miles). Qualification criteria for business credit cards depend on the card being applied for, and credit limit will depend on the business’s financials.

Who offers hotel business financing in the UK?

The variety of business financing options comes from a variety of lenders, including:

• High street banks
• Challenger banks
• Private lenders
• Community development institutions
• Other financial services companies

Each type of lender has its own pros and cons compared to its rivals; for example, high street banks offer some of the most competitive interest rates on the market, but they also have the strictest eligibility criteria for their products and take the longest time to process loan applications. In contrast, online lenders have more flexible eligibility criteria and faster processes, but may charge more in interest for this convenience. A balance between cost and other priorities must be found when seeking business financing for any reason.

What is the best type of hotel business financing in the UK?

Every business in the accommodation sector is in a unique position, despite sharing many similar challenges, so there is no single ‘best’ financing solution for everyone. Each individual business’s priorities will determine what type of financing, and from which lender, will best serve its needs.

When choosing business financing for your business, you therefore need to be aware of a few key things, including:

• How much money you need
• How soon you need it
• How much you can afford to pay back and how often
• Your business’s income, assets, debts and credit score

These factors will help you to eliminate financing solutions that won’t work for you, so you can concentrate on those that do. There may be several, in which case you need to then look at different lenders to determine which has the most competitive mixture of terms.

How do I choose a hotel business financing provider in the UK?

Choosing a lender with whom to partner for your business financing needs is more complex than simply choosing the cheapest business financing product. After all, this is a company your business will be holding a financial contract with, for a potentially prolonged period of time. Fair terms, transparency and reputability must all be considered, in addition to available products, applicant criteria and cost. 

You can start sorting through your possible options by eliminating lenders that do not offer the type of business financing that will suit your hotel’s needs. You can then consider the eligibility criteria of various lenders, to narrow the list down further to just those that are likely to approve your business for a loan. Then comes the nitty gritty: comparing terms and lender reputation. When in this final stage, remember to look at:

• Financing terms, such as:
  • Borrowing costs (including interest rates and any fees)
  • Loan term
  • Borrowing limit
  • Repayment terms
• Lender services, such as:
  • Types and availability of customer service
  • Application process
  • Approvals speed
• Lender reputation, including:
  • Length of time in business
  • Transparency of terms
  • Past customer reviews

Swiftfund prides itself on its fair terms, longstanding reputation and accessibility. Find out more about how we work here.

What is the eligibility criteria for hotel business financing in the UK?

Different types of business financing have different eligibility criteria. This means that most hotels and lodgings have at least some financing options, even if they don’t qualify for mainstream loans.

Typically, traditional business loans and lines of credit require the applying business to have:

• A minimum credit score of 640
• At least two years of operational history
• A minimum debt-to-credit ratio
• Extensive financial paperwork, including tax records, bank statements, cash flow statements, and so on
• A business plan detailing the intended use of funds and projected earnings

Other types of financing have less stringent criteria. For example, merchant cash advances do not require a minimum credit score or operating history, but instead rely on expected income when assessing applicants. Business credit cards are available to new or debt-heavy businesses, but the approved credit limit may be low. Some types of financing require collateral, while others don’t. So it is vital you understand your business’s financial position before selecting a type of financing or lender to apply to, to be sure you are focussing your energies on a loan your business will actually be able to get.

What documents do I need to apply for hotel business financing in the UK?

The exact mix of documents required to apply for business financing depends on the type of financing and the lender you are applying to; you may be asked for any of the following:

• Business legal documents
• Information on business assets
• Financial statements
• Bank statements
• Business plan
• Tax records
• Debit/credit card receipts for several months
• Existing leases, vendor contracts, debt obligations, etc.
• Personal details for the business owner(s)

The complexity of applying for a traditional business loan puts many business owners off even trying, which is why Swiftfund has chosen to specialize in MCAs. MCAs do not require a ton of paperwork to gain approval, and the application process is quick and easy – offering a vital lifeline to businesses with urgent needs or limited financial paperwork. 

How do I apply for hotel business financing in the UK?

Most lenders now offer online applications to allow business owners to apply for financing as is convenient for them. Before you start an application though, you need to make sure you have in hand whatever supporting documentation the lender may require; you can usually find an exact list of what’s being asked for on the lender’s website. With this information ready, you will be able to complete the application form, attach your documents, and submit it for consideration.

Once submitted, it can take anything from a day to several weeks to hear back from the lender. If you are approved for a loan or cash advance, you will receive a financing offer that details all of the terms and conditions of the financing; this should be carefully reviewed before it is accepted. 

Quick fire questions

Are there government programs to help UK hotel businesses?

Yes, the UK government offers multiple programs that aim to help small businesses and businesses in the tourism sector adapt to changing circumstances and survive difficult times. You can find a full list of these programs, and search for those relevant to your area, here. 

Can a hotel with leasehold property get business financing in the UK?

Yes; many hotels and lodgings have leasehold properties, and are still eligible for business financing. Just be aware that not every type of financing may be available; for example, commercial mortgages may have conditions around them regarding leasehold versus freehold status. Always check the terms of the lender and financing product you’re considering, before applying.

Can someone with bad credit apply for business financing in the UK?

Yes, individuals or businesses with bad credit can still access business financing in the UK. However, not all lenders will work with those with poor credit. Banks and other mainstream lenders usually have minimum credit score requirements that rule out those with bad credit; but online lenders and lenders offering products that do not rely on credit offer viable alternatives. In some cases, businesses may have to pay slightly more for access to these financing products, as the best interest rates are reserved for those with good credit. So it’s worth comparing the cost of interest-bearing credit products that are available to bad credit borrowers (such as online business loans) with the cost of non-credit reliant options (such as MCAs) to find the best solution.

What happens if my business is declined financing in the UK?

It need not be the end of the world if your business is declined financing in the UK; this does not mean that no lender will approve you for financing. The most common reason businesses are declined financing is that the type of financing, amount of financing, or lender applied to is inappropriate given the applying business’s financial situation. The remedy to this is to better understand your business’s financial situation and re-apply for a financing product that is better suited to you. 

Why do some hotels get better interest rates than others?

The interest rate offered to any given business by a lender depends on a number of factors, including the financing product applied for, the amount applied for, the lender’s own terms, and the financial situation of the applying business. Generally speaking, secured loans have lower interest rates than unsecured loans; and those with good credit, reliable income, few existing debts and a longstanding business history are more likely to qualify for the best rates. 

What’s a merchant cash advance and can I get one for my hotel business?

A merchant cash advance (or MCA) is a type of financing that allows businesses to borrow a lump sum, and then repay it not in regular installments over a set period of time, but as a fraction of sales income, as and when sales occur. A small, fixed percentage of debit and credit card income is redirected from the payment processor to the lender, and this happens until the entire sum has been repaid. There is no set term; if sales increase, more repayments happen and the loan is repaid faster, and if sales decrease, repayments decrease and the loan takes longer to repay. MCAs are therefore flexible and adapt to fluctuating income, making them useful for businesses without fixed income to cover fixed loan repayments, and ideal for businesses who process customer payments via credit and debit card. 

What happens if I don’t repay business financing in the UK?

Failing to repay any form of business financing can have serious consequences, including legal action, seizure of assets, and a long-term negative effect on both the business’s and the business owner’s credit score. To avoid these issues, only ever take on debt that you can afford to repay, and if you’re struggling with debt repayments, seek financial assistance before you reach default.

If you’d like more help understanding your hotel’s business financing options, speak to a Swiftfund expert today.