The hospitality industry has a unique set of conditions when it comes to bridging finance. Our guide looks at Bridging Finance available specifically for hotel investments.
The Following Topics Are Covered
How Does A Bridging Loan Help Hotels?
We'll look at how bridging finance can be used by hotels to expand by illustrating an example. A medium-sized hotel has been in business for several years and has made profits despite most of its assets being financed.
The hotel is looking to expand when possible and is situated in a building that includes several other businesses. In fact, one of them is in financial difficulty and is trying to reduce its footprint by selling off its current site at a discount, but they must close the sale quickly in order to pay its outstanding bill.
Even though they've been offered a bargain price, they still don't have enough money on hand. It would be possible to extend their current property at a reduced price if they were able to act quickly, but even so, they would still have a distance to go in regard to capital raising.
This is where Bridging Finance can help as it allows for new opportunities for hotel expansion. Speed it's being its main USP in comparison to traditional mortgages, you will be able to have funds as quickly as 7 to 10 days allowing the borrower to secure opportunities quickly.
Different Bridging Loan Products For Hotels
If the property is in habitable condition and does not require improvement. Typical examples of this happening are given below
Purchasing a hotel before existing another property and need to move quickly
Cash Flow for Business Purposes
If you need to break a mortgage chain
Required in Instances where no planning permission or building regulations is necessary. Typical examples of this happening are given below
Under Permitted Development: Lighter refurb finance can be acquired to allow for changes for example offices into residential flats
If there is internal redecoration needed
If the property is currently uninhabitable, a bridge loan is a good way to provide finance for a refurbishment to allow for a long-term loan to be put into place
Examples include where bridge loan finance is required for properties where planning or building regulations are required. Examples are given below.
Loft Conversion: If more space is required, many developers try to unlock value by creating space through this method
Extension to Property
Changing a multi-unit into a single unit
Commercial to Residential Use
Second Charge Bridging Mortgages
In instances where the property has an existing mortgage secured against it, there may be instances where finance can be raised as a second charge. There are plenty of use cases including:
Raising a deposit for a second hotel:
Home Improvements: if for loft conversions
Business Purposes
Tax Bill
Benefits Of Using Bridge Loans Over a Commercial Mortgage?
Bridging loans are more faster and flexible than a traditional commercial mortgage, so if there are scenarios where you will need to complete them quickly. i.e at an auction or if the property is currently inhabitable and works need to be done before placing the loan on a longer-term mortgage, bridging can be a solution.
How Much Can I Borrow On A Bridge Loan For A Hotel?
The majority of bridge finance lenders cap their LTVs (Loan to Value) at around 70% to 75%. In these cases, the borrower will need to find a 25%-30% deposit.
There are cases where you can obtain a higher LTV but there will in most cases need to be additional security
What Is The Eligibility Criteria For Bridge Loans for Hotels?
One of the first questions always asked by bridging lenders is what will be the planned exit (i.e how will the lender be repaid)? The stronger the exit strategy in your application, the greater the chance of successful approval.
There are a number of lenders who will look at several factors including:
Experience in the sector: You'll be regarded as a lower risk if you have a track record within the hotel sector.
A larger deposit: As mentioned above, the bigger the deposit, the more competitive rates available due to less risk to the lender
Security: A strong asset goes a long way in assessing the rate
Credit scoring is carried out, with any adverse posing a higher risk factor. You can check your credit report for free here
The exit strategy is essential and usually is through refinancing or selling the property. Lenders require proof of the strategy before producing an agreement in principle
Accelerated Finance has worked on many complex hotel bridging cases. We were recently approached by a family owning a chain of hotels in the West End to arrange an urgent bridge loan to exit one of their lenders due to a complex probate case.
Very challenging indeed, as we had to get the probate approved and accepted by the lender in 2 weeks with the loan completion a week thereafter.
Further Reading
Disclaimer
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Accelerated Finance Limited only considers applications for commercial or investment properties.
Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract.
Please note that Accelerated Finance Limited and its employees do not give financial advice or recommendations on any product.
