Commercial mortgage for first-time hoteliers

The clients are a married couple who were hoping to buy a 16-room hotel in Lincolnshire, despite never having owned a hotel before.

The wife works as a part-time lecturer in hospitality and holds an HND in Hotel Management. She is also a qualified training manager in the hotel industry. In the 1990s she had held a senior position at a prominent London hotel chain.

The husband is an architect with his own practice.

The couple had offered £550,000 to buy the hotel as a going concern and were looking for a loan of £500,000! They had cash savings of £100,000 and also own their own home (with a mortgage).

To make matters more interesting, the couple had set up a limited company through which they wished to purchase the hotel!

Despite this complicated scenario, I approached a lender that was happy to consider the application but I warned the clients that getting a loan could be tricky.

The lender instructed a business valuer who found that the hotel had a bricks and mortar value of £450,000, generated an annual turnover of £260,000 and had an adjusted net profit in the region of £65,000. In his professional opinion, the valuer considered that the hotel was a good risk.

However, the lender also required additional security so I suggested taking a second charge on the couple’s home which had additional security value of £250,000. The couple and the lender agreed to this. In fact, the couple had tried, unsuccessfully, to raise funds against their home prior to asking for my help.

After lots of negotiation, the loan was agreed in January 2015 and the completion is scheduled for late March/ early April 2015.

Here are the detail of the deal:

Purchase price (building & business): £550,000

Hotel freehold value: £450,000

Supporting security value: £250,000 

Loan amount: £500,000 (£507,250 including lender arrangement fees)

LTV: 71% of freehold value

Rate: Lender’s LIBOR + 6.15%

Term: 20 years (part capital repayment -70%, part interest only - 30%).

Arrangement fee: 1.7% (£7,250 added to loan)

Completion date: March/April 2015

This is just one example of how I've helped a client secure a commercial mortgage. To see more of my case studies please visit my profile page. And if you have any funding requirements, please do not hesitate to contact me. My direct line and email address can be found below.