How does hotel financing work, and what does it cost right now?
Last updated: By Luke Thompson, Matthews Hotel Markets
Hotel loans are sized by cash flow, not by price. A lender starts with trailing twelve-month NOI, applies a debt service coverage test and a debt yield floor, then lends whatever is smaller. Loan-to-value is the third test, not the first. Fixed-rate quotes start from the 10-year Treasury, which was 5.29 percent on September 30, 2026.[1]
Key takeaways
- Three tests size a hotel loan: DSCR, debt yield, and LTV. The lowest number wins.
- Hotels price wider than apartments or industrial because the revenue reprices nightly.
- Five lender types compete for hotel debt and they do not want the same deal.
- A franchise comfort letter is a closing condition on almost every branded hotel loan.
- Bring a trailing twelve-month P&L, a STAR report and a PIP status letter to the first call.
How do lenders decide how much they will lend on a hotel?
A hotel lender runs three sizing tests against the same trailing twelve-month NOI and lends against whichever produces the smallest number.
The debt service coverage ratio (DSCR) test divides NOI by the proposed loan's annual debt service and requires the result to clear a minimum the lender sets. The debt yield test divides NOI by the loan amount directly, against a floor; it ignores rate and amortization entirely, which is why it can bind even when DSCR looks comfortable. Loan-to-value caps the loan against an appraised or purchase value. Each lender sets its own thresholds, and no conventional lender type publishes them, so our rate sheet marks them not yet published rather than guess.[4] Get your lender's tests in writing.
None of the three tests is a formality. A lender runs all three and lends the lowest number, because that is the number every test in the package agrees the asset can carry. Amortization schedule matters here too: a 25-year schedule produces a smaller annual payment than a 20-year schedule on the same rate, which raises DSCR and can move which test binds. Ask a lender which test is binding on your deal before you negotiate rate, because moving the rate half a point does nothing if debt yield, not DSCR, is the constraint.
What does a hotel loan cost in September 2026?
Hotel loan pricing is quoted as an index plus a spread, and the spread on hotels runs wider than on apartments or industrial property.
Fixed-rate hotel quotes track the 5- or 10-year Treasury; floating quotes track SOFR.[1][2] The spread over that index is set by five things, in the order we see lenders weigh them: the sponsor's experience and liquidity, the franchise flag and its market position, whether a PIP is open or funded, the market itself, and finally the loan structure. A hotel with an experienced sponsor, a top-performing flag, a funded PIP and no near-term renovation prices tighter than an identical building with a first-time buyer and an open PIP notice, even at the same leverage.
Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% as of September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, which is SBA's 3.00% cap over the 7.00% Prime in effect since September 17, 2026.[3][6] It marks the conventional spread over that index as not yet published, because we do not print a spread until three independent lenders quote the same structure in a month.[4] The sheet shows what is and is not published, which is the part most rate sheets leave out. See the full breakout by lender type on /hotel-financing/hotel-loan-rates.
Who actually lends on hotels?
Five lender types compete for hotel debt, and each one wants a different deal, not the same deal at a different price.
Banks and credit unions want a relationship and will usually ask for recourse. Life insurance companies want the lowest leverage and the longest, most stabilized hold, in exchange for the lowest rate. CMBS conduits want stabilized cash flow they can pool and sell, sized to a debt yield floor, non-recourse with standard carve-outs. SBA lenders want an owner-operator inside the program's caps. Debt funds and bridge lenders want a transition story: a PIP in progress, a ramp after a brand change, or a maturity that cannot yet refinance permanently.
The full comparison, with typical leverage and minimum loan size by type, is on /hotel-financing/hotel-lenders-by-type. Recourse is covered on /hotel-financing/non-recourse-loans, interest-only structures on /hotel-financing/interest-only-loans, ground-up projects on /hotel-financing/construction-loans, reflags on /hotel-financing/brand-conversion-financing, and extended-stay hotels on /hotel-financing/extended-stay-financing.
Six less common capital sources have their own pages: C-PACE assessments on /hotel-financing/c-pace-financing, the USDA guarantee for rural hotels on /hotel-financing/usda-b-and-i-loans, EB-5 investor capital on /hotel-financing/eb-5-financing, historic tax credits on /hotel-financing/historic-tax-credits, opportunity zones on /hotel-financing/opportunity-zones, and taking over a seller's loan on /hotel-financing/loan-assumption.
Six pages cover how a deal is structured and closed: the layers of a deal on /hotel-financing/capital-stack, gap capital on /hotel-financing/mezzanine-debt-and-preferred-equity, lockboxes and reserves on /hotel-financing/covenants-and-cash-management, rate caps on /hotel-financing/interest-rate-caps, taking cash out on /hotel-financing/cash-out-refinance, and closing day on /hotel-financing/closing-costs.
What do I need before a lender will quote me?
A lender wants a trailing twelve-month P&L, a STAR report, and a PIP status letter before it will give you a real number, not an indication.
The document package that actually moves a quote from an indication to a term sheet is a trailing twelve-month profit and loss statement, a STAR report showing occupancy, ADR and RevPAR against the competitive set, the franchise agreement and any PIP letter, and a personal financial statement from the sponsor. Lenders also want recent capital expenditure history, because a NOI that was bought by deferring maintenance is not the same NOI as one that was earned. The full checklist, with realistic lead times for each document, is on /hotel-financing/loan-requirements.
Can a hotel with weak occupancy still get financed?
Yes, but a lender underwrites the trend and the cause, not just the trailing number.
A hotel running below its competitive set on occupancy is not automatically unfinanceable. What matters is whether the shortfall is temporary (a renovation disruption, a market supply wave that is being absorbed, a brand transition mid-completion) or structural (a declining submarket, an aging property losing share to newer supply). A lender that believes the shortfall is temporary will often underwrite to a near-term stabilized number instead of the trailing twelve, particularly in a bridge or debt fund structure. One that believes it is structural will size conservatively to the trailing number or decline.
What fees should I expect beyond the rate?
Origination points, third-party reports, and legal costs sit on top of the quoted rate, and all but the third-party reports are negotiable.
Origination is typically quoted in points on the loan amount, and it is one of the more negotiable line items in a hotel loan, particularly when a lender is competing for the deal. Third-party costs, appraisal, property condition assessment, environmental report and, on a franchised property, the franchise's own transfer and application fees, are not generally negotiable and should be budgeted up front. Legal fees run both ways: the lender's counsel is typically a borrower cost. None of these figures belongs on this page as a flat number without a date, because they move with the lending environment; see the current rate sheet for what is quoting this month.
What is the smallest hotel loan a lender will do?
Minimum loan size is a quiet filter that rules out entire lender types before rate ever comes up.
SBA's 7(a) program terms set a $5 million maximum and list no minimum loan size, so SBA lenders go smaller than any other type.[3] CMBS conduits and life insurance companies generally prefer larger loans, because the fixed cost of underwriting and, for CMBS, pooling a small loan does not pencil against the fee. Banks sit in between and will size to a relationship even on a smaller loan. If your loan need is small, the practical lender universe narrows to banks, credit unions, SBA, and some debt funds before you ever discuss rate. /hotel-financing/lenders-under-5-million compares the small-balance options, including the USDA guarantee for rural hotels.
Hotel loan sizing tests, September 2026
| Test | What it measures | Typical threshold | What it constrains |
|---|---|---|---|
| DSCR | NOI divided by annual debt service | Set by the lender; not published by any conventional lender type[4] | Payment, so it caps loan size at a given rate |
| Debt yield | NOI divided by loan amount | Set by the lender; not published[4] | Loan size directly, independent of rate |
| LTV | Loan divided by appraised value | Set by the lender; SBA 504 allows up to 85% of project cost on a hotel[4][5] | Loan size at a given valuation |
| Amortization | Schedule used to compute payment | Varies by lender; SBA 7(a) allows up to 25 years on real estate[3] | Payment, so it moves DSCR |
Every question in this guide
- Can I use a 1031 exchange to buy or sell a hotel?
How a 1031 exchange works on a hotel: what qualifies, the 45 and 180-day rules, FF&E treatment, and when to line one up before you sell.
- Do I need an appraisal to get a hotel loan?
When a hotel loan needs an appraisal, why you cannot order it yourself, what the report must contain, and the extra rules SBA adds on a 504 deal.
- Why does my bank say it is full on hotel loans?
What a bank means when it says it is full on hotel loans: the 100 and 300 percent supervisory screens, why a hotel loan always counts, and what to do.
- How do I finance converting my hotel to a new brand?
How owners pay for a hotel reflag in 2026: conversion budgets from public FDDs, exit damages, key money, and the bank, bridge and SBA loans that fund it.
- What is a bridge loan and when should a hotel owner use one?
How hotel bridge loans are priced and structured in 2026, what the rate cap costs, and the three situations where bridge debt is the right answer.
- Can I use C-PACE financing on a hotel?
C-PACE on a hotel: what it funds, why your lender must consent, where the assessment sits in the capital stack, and how retroactive C-PACE works.
- What happens to my hotel if I file Chapter 11?
What Chapter 11 does for a hotel owner and what it does not: the automatic stay, the 90-day single-asset clock, room revenue as cash collateral.
- What is a CMBS loan and how does it work for hotels?
How hotel CMBS loans are sized, priced and serviced in 2026, what non-recourse actually costs, and when a CMBS execution is the wrong choice.
- How do I finance hotel construction in 2026?
How ground-up hotel construction loans work in 2026: bank limits, equity, draws, interest reserve, guaranties, SBA options and the permanent takeout.
- How does EB-5 financing work for a hotel?
EB-5 capital in a hotel deal: $800,000 and $1,050,000 minimums, targeted employment areas, the 10-job rule, regional centers, key dates and the risks.
- How is extended-stay hotel financing different?
What changes when a lender underwrites an extended-stay hotel: the SBA 30-day transient test, occupancy and rate profile, tax treatment and lender fit.
- Hotel financing questions, answered
Short answers to the hotel financing questions owners ask most: minimum loan size, points, comfort letters, guarantees, and qualifying with weak occupancy.
- Does my hotel need flood insurance to close a loan?
When federal law forces flood insurance on a hotel loan, why the $500,000 NFIP cap leaves a gap, what the policy excludes, and the authorization date.
- Can I use historic tax credits to renovate a hotel?
The 20% federal historic tax credit on a hotel: which buildings qualify, the substantial rehabilitation test, the 5-year claim, recapture, state credits.
- Who are the biggest hotel lenders, and which type fits my deal?
Banks, life companies, CMBS, SBA and debt funds compared on rate, leverage, recourse and speed, with the deal profile each one wants.
- What are current hotel loan interest rates?
Where hotel loan rates sit in September 2026 by lender type, what drives the spread over Treasuries and SOFR, and how rate moves change loan size.
- How does hotel debt placement actually work?
What a debt placement broker does on a hotel loan, how lenders are selected, what it costs, and when to run a process instead of calling your bank.
- Can I deduct all the interest on my hotel loan?
Section 163(j) and a hotel loan: the 30 percent cap, the $32,000,000 exemption for 2026, the syndicate trap, and what electing out costs.
- Can I get an interest-only hotel loan?
Which hotel lenders offer interest-only periods in 2026, which programs forbid them, and what interest-only does to payment, DSCR and the balloon.
- Who lends on hotels under $5 million?
Small-balance hotel loans in 2026: SBA 7(a), SBA 504, community banks, credit unions and the USDA B&I guarantee, with the program limits that matter.
- Can I assume the existing loan when I buy a hotel?
How hotel loan assumptions work for CMBS, SBA 7(a), SBA 504, USDA and bank loans: who approves, what the rules say about fees, and when it pays.
- How much hotel debt is maturing in 2026 and 2027?
What public sources actually say about hotel loan maturities in 2026 and 2027, how to tell if yours is at risk, and what to do 12 months out.
- What do lenders require for a hotel loan?
The documents, ratios and sponsor tests behind a hotel loan approval in 2026, plus what to send a lender before the first call.
- What is a loan workout and how does it work for a distressed hotel?
What happens when a hotel loan goes to special servicing, what a workout can and cannot fix, and what an owner should do in the first 30 days.
- Can I use New Markets Tax Credits on a hotel?
Whether a hotel qualifies for the New Markets Tax Credit: the census tract test, the 39 percent credit over 7 years, the exclusions, the 7-year hold.
- Can I get a non-recourse loan on a hotel?
Which hotel lenders lend non-recourse in 2026, what the carve-outs really cover, who signs the guaranty, and how recourse changes the tax result.
- What will it cost to pay off my hotel loan early?
What it costs to pay off a hotel loan early: SBA's 5, 3 and 1 percent fee, the 504 formula, CMBS lockout, defeasance and yield maintenance.
- Do opportunity zones still help hotel investors?
Opportunity zones after the 2025 law change: the December 31, 2026 deadline, new zones from January 1, 2027, rural bonuses, and how hotels meet the tests.
- How do I finance a hotel PIP or renovation?
What a hotel PIP costs per room, how long you get to complete it, and the four ways owners fund one in 2026.
- Should I refinance my hotel or sell it instead?
A numbers-first framework for deciding whether to refinance, extend or sell a hotel in 2026, with the arithmetic shown both ways.
- How do I refinance a hotel loan before it matures?
A step-by-step hotel refinance in 2026: when to start, how proceeds are sized, what to do when value dropped, and the options when the numbers do not work.
- What is the difference between an SBA 7(a) loan and an SBA 504 loan for a hotel?
SBA 7(a) versus 504 for a hotel purchase: eligibility, down payment, rate structure, loan caps and which one fits which deal.
- Does my hotel brand have to be on the SBA Franchise Directory?
Yes, if the brand meets the FTC definition of a franchise. What the October 9, 2026 Directory lists for hotel flags, and the conditions it attaches.
- Is my hotel company too big for an SBA loan?
The $40.0 million receipts standard for NAICS 721110, the $20 million alternative, which of your other hotels count, and the $3.75 million guaranty cap.
- Can I get a USDA B&I loan for a hotel?
USDA B&I guaranteed loans for rural hotels: eligibility, the $25 million limit, equity rules, fiscal 2026 fees, appraisal and refinance tests.
- What is a hotel capital stack, and how do I build one?
The layers that pay for a hotel, in order: senior debt, C-PACE, mezzanine, preferred equity, key money and common equity, with a worked $20M example.
- How do I take cash out when I refinance my hotel?
How a hotel cash-out refinance works: sources and uses, what limits proceeds, SBA limits on cash out, seasoning, and how loan proceeds are taxed.
- What happens at a hotel loan closing, and what does it cost?
What happens at a hotel loan closing and what it costs: title, legal, third-party reports, lender fees, taxes and reserves, with 2026 figures.
- What covenants and cash management will my hotel lender require?
Lockboxes, cash sweep triggers, DSCR tests, FF&E and seasonality reserves, and guaranties on hotel loans, with terms quoted from 2026 public loan filings.
- Do I need an interest rate cap on a floating-rate hotel loan?
How a rate cap works on a SOFR-based hotel loan, who requires one, what drives the price, and what one public hotel owner paid from 2023 to 2025.
- How do mezzanine debt and preferred equity work on a hotel deal?
Where mezzanine debt and preferred equity sit in a hotel deal, what the intercreditor agreement does, what each costs you in control, and a worked example.
Recently updated
Worked example
Hypothetical: 95-key select-service hotel, Texas secondary market
This property is hypothetical. Stabilized NOI is $1.60M. The lender quotes 25-year amortization and a 1.35x DSCR test.
Maximum annual debt service equals $1.60M divided by 1.35, or $1,185,185. At a 7.25 percent rate over 25 years, each $1M of loan carries about $86,800 a year of debt service, so the DSCR test supports a loan of $1,185,185 divided by $86,800 per $1M, or $13.65M. The debt yield test at 10 percent divides $1.60M by 0.10, supporting $16.0M. The LTV test at 60 percent of a $20.0M value supports $12.0M.
The LTV test is the binding constraint here, so the loan is $12.0M, not $13.65M and not $16.0M. Change the rate to 8.00 percent and the DSCR number falls to roughly $12.8M, and the two tests nearly converge. That is the whole exercise: find which test binds, then work on that one.
Frequently asked
- What DSCR do hotel lenders require in 2026?
- Each lender sets its own minimum, and no conventional lender type publishes one, so there is no honest single number to quote. Ask the lender for its test in writing. Life companies generally want more cushion in exchange for lower leverage.
- Is debt yield or DSCR the harder test on a hotel loan?
- It depends on the rate environment. When rates are high relative to NOI, debt yield often binds first because it ignores rate and amortization. When rates are low, DSCR usually binds. Ask your lender which test is constraining your specific loan.
- What loan-to-value can I get on a hotel today?
- It depends on the lender and the asset. SBA 504 allows up to 85 percent of project cost on a hotel. Conventional lenders do not publish a ceiling. At the same NOI, leverage is lower than in 2021 because the payment on each dollar is higher.
- Do hotel loans have prepayment penalties?
- Almost always. Bank loans typically use a declining step-down penalty. CMBS loans use defeasance or yield maintenance, both of which are expensive in the first years of the loan. Ask for the exact schedule before you sign.
- How long does it take to close a hotel loan?
- Plan on a few months from a complete application package to funding. SBA loans can take longer because of the guaranty process. Bridge loans can close faster when the asset and sponsor are already known to the lender.
- Do I need a personal guarantee on a hotel loan?
- Most bank and SBA hotel loans carry a personal guarantee. Non-recourse structures are available through CMBS and life companies, generally at larger loan sizes and lower leverage.
- What is a franchise comfort letter and why does the lender want one?
- A comfort letter is the franchisor's agreement to let the lender step into the franchise agreement if it forecloses, so the flag survives a change of ownership. Almost every branded hotel loan requires one as a closing condition, and the franchisor sets the timeline, so request it early.
Who wrote this
VP & Director, Capital Markets, Matthews Hotel Markets
(512) 771-1860luke.thompson@matthews.comLinkedIn
Reviewed by Miles Cortez III, VP & Director, Hospitality Capital Markets.
Sources
- Daily Treasury Par Yield Curve Rates · U.S. Department of the Treasury · accessed September 18, 2026
- Secured Overnight Financing Rate (SOFR) · Federal Reserve Bank of New York · accessed September 18, 2026
- 7(a) loan program: terms, conditions, and eligibility · U.S. Small Business Administration · accessed September 18, 2026
- Matthews Hotel Markets October 2026 rate sheet · Matthews Hotel Markets · accessed September 18, 2026
- SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) · U.S. Small Business Administration · accessed September 18, 2026
- BNY Increases Prime Lending Rate to 7.00% · The Bank of New York Mellon Corporation, via PR Newswire · accessed September 18, 2026
Related
More in this guide
Terms defined in the glossary
Matthews Hotel Markets places hotel debt and equity, and publishes the rate sheet the numbers on this page come from.