A hotel owner thinking about a refinance has more than one loan to weigh. The biggest is secured on the freehold going concern, the building and the trading hotel together. Beside it sit the debt from the last guest-room refresh and the finance on the restaurant kitchen, the bar and the meeting-room screens. Any of them can move to a new lender, join another or stay put, and each choice changes the monthly outgoings and the lifetime interest.
Are the carpets, beds and curtains in your guest rooms nearly due for replacing while the loan that bought them is still running? Has your lender asked for a fresh valuation just as you are planning the next refurbishment? Is commission to the booking sites taking more of each night's room rate than you would like? Do the quiet months leave the overdraft drawn when the loan repayments fall due?
Tourism Research Australia counted 13,803 accommodation businesses in Australia in June 2025, drawing on ABS business register data. That count covers every kind of accommodation business, not hotels alone.
Ardent Capital Group can help a hotel owner refinance each of these debts, the building, the beds and the bar alike, and it would be a pleasure to work through them together.
The refurbishment, the valuation and the loan term
For a hotel owner, several dates can land close together. Guest rooms come due for a refresh. The property loan nears its expiry date. The loan's annual review falls due.
- The rooms. Soft goods are the beds, mattresses, carpets, curtains and freestanding furniture in each guest room. Effective life is the number of years an asset can be used to produce income, taken from the ATO's determination or worked out by the business. It is a tax figure, not a promise of how long the equipment will run. The ATO's effective life determination gives accommodation providers 7 years for carpets, beds, mattresses and guestroom furniture, and 6 years for blinds and curtains.
- The valuation. The LVR, short for loan-to-value ratio, compares the hotel's debt with a current valuation of the hotel.
- The loan term. The loan on the freehold comes up for decision when its term expires, or when an interest-only period ends. Interest-only means the hotel pays the interest alone for an agreed number of years.
- Wages and commission. Housekeeping, front office, kitchen and bar staff are covered by the Hospitality Award, which takes in hotels and other tourist accommodation. Online travel agents, the booking sites that charge a commission per booking, add a cost to every night sold through them.
A refinance cannot move the refurbishment cycle or the season. It can change the share of room, food and conference income spent on repayments, and how long that lasts.
Example: a 60-room hotel's loans side by side
With the hotel's debts in one place, the options later on are easier to compare. The figures are illustrative. The owner holds the freehold of a city hotel with 60 rooms, a restaurant, a bar and a conference room, and trades through a company. The rooms were refurbished four years ago on a seven-year loan. The kitchen, bar and conference audio-visual equipment were financed two and a half years ago.
| Loan | Still owed | Rate we assumed | Months to go | Paid monthly |
|---|---|---|---|---|
| Loan on the freehold going concern | $6.2M | 7.25% | 180 | $56,597 |
| Loan for the room refurbishment | $420k | 10.5% | 36 | $13,651 |
| Equipment loan for the kitchen, bar and conference AV | $185k | 11% | 30 | $7,081 |
| Total | $6.805M | $77,329 |
The hotel still owes $6.2M on the freehold going concern, at an assumed 7.25% over 180 months, and pays $56,597 a month. All three loans together take $77,329 a month. The equipment loan ends after month 30 and the loan for the refurbishment after month 36, so the total steps down twice.
The loan for the refurbishment ends at about the time the soft goods reach their seven-year effective life. The hotel also has a $250k overdraft, with $120k drawn after the quiet months. The overdraft is a borrowing line on the hotel's bank account, drawn and repaid as takings rise and fall. Its interest, at an assumed 10%, comes to about $1,000 a month. The worked example leaves the overdraft untouched. The hotel's rates here are picked for arithmetic, not taken from any lender's rate sheet.
What a refinance changes on the hotel's loans
In a refinance, fresh borrowing clears some or all of the hotel's current loans. Three settings decide what the new loan costs the hotel each month and over its life.
- Rate. At an unchanged term, a cheaper rate trims the hotel's repayment and the interest across the loan's life.
- Term. Stretch the hotel's balance across extra months and every instalment shrinks. Because the money is borrowed for longer, the hotel pays more interest overall. A hotel may still choose it for a known stretch, such as a year with a floor closed for works.
- Security. Security is whatever the hotel or its owner puts up for the loan, which the lender can sell to recover the debt if payments stop. Lending against bricks and mortar generally comes at a lower rate than lending against the business on its own, with the building then committed to that debt.
The hotel's three loans are amortising: each runs down to nil by the end of the term, unless it ends in a balloon, a lump sum left to the final repayment. None of them carries a balloon. Each month's interest is paid before anything reduces the debt. Since interest is charged on whatever remains owing, the heaviest interest falls in the first years.
Worked example: splitting month one on the freehold
Breaking the first repayment in two shows how the hotel's money divides in the early years. Principal is the sum the hotel borrowed, separate from the interest on top. Month one on $6.2M at an assumed 7.25% carries $37,458 of interest. The other $19,139 of the $56,597 repayment reduces what is owed. A year of repayments takes about $237,500 off the debt, and the principal share edges up with every payment.
Refinancing each of the hotel's loans
The hotel's debts bought things that wear out at very different speeds. The building lasts for decades, while carpets and beds are replaced within a handful of years.
The loan on the freehold going concern
For an owner-operator, this is the largest debt and the one that holds most of the hotel's equity. Equity is the hotel's value beyond the debt secured on it. It is secured by a mortgage over the hotel. A lender may also take a general security agreement and guarantees from the directors. A general security agreement gives the lender a charge over the company's other assets, such as its equipment, stock and the money corporate clients owe it. A guarantee makes each director answerable for the debt should the company fall short.
Lenders class a hotel as specialised security. Specialised security is the lending category that takes in hotels, motels, pubs, childcare centres and caravan parks. Three measures describe a hotel's room trade:
- Occupancy is the share of available rooms sold.
- Average room rate is what each sold room earns per night.
- RevPAR (revenue per available room) spreads room income across all rooms, empty ones included, which blends occupancy and rate into one number.
For a hotel, the LVR sits between 50% and 65% of a current valuation. Bank terms on commercial property commonly run 10 to 15 years, and non-bank terms 25 to 30 years.
Where this loan is fixed, leaving early can trigger a break cost: a fee for ending a fixed rate early. The more rates have fallen since the rate was fixed, the bigger it is. Getting that number from the current lender in writing comes first. Our page on refinancing a hotel you own covers this loan in more detail, including refinancing ahead of a term expiry and funding a room refurbishment.
Room refurbishments and soft goods
Guest rooms wear in a steady rhythm, and soft goods are replaced several times in the life of the building. Hard refurbishment covers bathrooms and fixed fittings. The loan in the example paid for the last soft-goods refresh and has 36 months left.
A refinance can lower the rate on that balance, or fold it into the loan on the freehold. Folded in, the beds and carpets are paid for over 15 or 25 years. The next refresh would then fall due while the last one was still being repaid. Kept as a separate loan, the balance ends close to the life of what it bought.
If the refurbishment was funded under an equipment contract, ending it early can bring an early payout charge, which is set out in the contract itself.
Kitchen, bar, conference AV and building plant
A hotel runs a restaurant kitchen, a bar and meeting rooms alongside its guest rooms, and each has its own equipment. The ATO's determination directs accommodation providers that run a bar, cafe or restaurant to the hospitality entries for those assets. There, large commercial cooking appliances carry 10 years and freestanding bars 15. Conference audio-visual equipment carries 5 years under the accommodation entries.
The building has plant of its own. The accommodation entries give automatic door controls, public address systems and hot water systems 10 years each. Lifts are not listed there, and accommodation providers may rely on the residential property operators table, which gives lifts 30 years. The hotel's accountant confirms which entries apply to its own assets.
Thirty months remain on the example's equipment debt. Folded into a 25-year loan, the projectors and screens in the conference room would still be on the loan two decades after their 5-year effective life ran out. A lift or automatic doors are fixed to the building, so replacing them is works on the property. That cost can be funded within a refinance of the property loan, subject to the lender.
The overdraft, the quiet season and the ATO
Room income moves with the season while most of the hotel's costs do not. A city hotel may fill midweek with corporate guests and run quieter at weekends, and a hotel in a holiday town may run the other way. Corporate accounts billed on invoice add a wait between the stay and the payment.
The overdraft covers those gaps. Fold the drawn amount into a term loan and it is repaid, yet the hotel loses that buffer before the next slow month.
The hotel's BAS, its business activity statement, reports GST (goods and services tax). It also reports the tax taken out of staff pay, called PAYG withholding, and the company's PAYG income tax instalments. Tax owed on the BAS under an ATO payment plan can be cleared from the proceeds of a business loan where the lender agrees. Interest the hotel pays on its business borrowing may be tax deductible. From 1 July 2025, interest the ATO charges on late tax is no longer deductible, and the hotel's accountant confirms how each applies.
Putting the hotel's loans together
Once each debt makes sense alone, the next step is seeing how the building, rooms and equipment debts might be arranged together.
Worked example: the hotel's $6.805M carried four ways
Each option is set against leaving the hotel's loans untouched, by the monthly saving or cost and the gain or loss in interest over the life of the debt.
| Option | Paid each month | Saving or cost per month | Total interest ahead | Interest saved or added |
|---|---|---|---|---|
| No change to the three loans Today | $77,329 | Starting point | $4,086k | Starting point |
| Loan on the freehold repriced, still 180 months | $75,596 | $1,733 less | $3,774k | $312k less |
| Fold the refurbishment into the loan on the freehold over 180 months | $66,583 | $10,746 less | $4,118k | $32k more |
| All three rolled into a single 25-year loan | $48,096 | $29,233 less | $7,624k | $3,538k more |
| Loan on the freehold repriced, and the two shorter loans joined over 36 months | $74,244 | $3,085 less | $3,768k | $318k less |
Illustrative, rounded figures, using assumed rates, which are neither market rates nor quotes. Left out: break costs, the overdraft, early payout charges, establishment and valuation fees, and rate movements over the term.
One loan for all three cuts the monthly repayments by $29,233. It also adds $3,538k of interest, because the whole balance runs for many more months. The beds, carpets and conference screens inside it have effective lives of 5 to 7 years, against a loan that runs for 25.
Folding the refurbishment into the loan on the freehold saves $10,746 a month for $32k more interest. The soft goods from the last refresh would then would still be on the loan when the rooms are next done.
Every option that rolls debt into the loan on the freehold also has to fit inside the LVR band. At 65%, $6.805M needs a current valuation of about $10.47M, and at 50% about $13.61M.
Which option suits the hotel depends on the season, the refurbishment plan and how long the owner means to hold the building. Our part is collecting a payout figure for every loan and laying the choices out side by side, monthly cost against lifetime interest. A payout figure is the sum, costs included, that settles a loan in full on the day it is paid. Whichever you pick, we take it to lenders with an appetite for hotel security. These figures are illustrations, not an offer of finance.
Example: adding the next room refurbishment
The guest rooms will need their next refresh, and that work can be funded inside the refinance or beside it. Take an illustrative $900k for soft goods across the 60 rooms.
On its own loan over 84 months at an assumed 9%, it costs $14,480 a month and $316k in interest. Inside a 25-year loan at an assumed 7%, it costs $6,361 a month and $1,008k in interest, which is $692k more. A 25-year term runs over three times the seven-year effective life of the carpets and beds.
Adding the $900k to the example's $6.805M makes $7.705M. At an LVR of 65%, that needs a current valuation of about $11.85M. Quotes and a schedule of works set out what the money pays for and when.
What can secure the refinanced loans
The hotel, the company and the owner's own property can each back the new loans, with different consequences.
- The freehold. A mortgage on the building can secure the equipment and refurbishment debts too, provided the hotel's combined debt fits within the LVR band.
- The company's assets. A general security agreement is registered on the PPSR, the national register of security interests in personal property. It does not cover land, buildings or fixtures to land. When the old lender is paid out, its PPSR entry is removed and the new lender records its own interest.
- Directors' guarantees. A loan to the hotel company is commonly backed by each director personally.
- The home. Putting the family home up may alter the rate and term a lender offers, and the house then secures the hotel's borrowing. It is the owner's decision, made with the worked example's figures in view. Our page on home loans for accommodation business owners looks at the mortgage on the house, and at keeping it separate from the business borrowing.
A hotel held in a trust, or a second property
Some owners hold the freehold in a family trust and run the hotel through a company that pays the trust rent. The lender then looks across the trust, the company and every guarantor at once. The rent between the two entities, the company's trading and each director's personal borrowing all count.
Getting ready to refinance the hotel
Seasons, refurbishment works and loan dates all leave marks in a hotel's accounts.
Timing around works, seasons and fixed rates
A few points on the hotel's calendar change what a refinance costs or what the figures show.
- A costly break on a fixed rate. If that fee would swallow the saving, the hotel can come back to the refinance nearer the date the fixed rate ends.
- Lodged returns. Outstanding BAS and tax returns lodged ahead of the application keep the figures current.
What the hotel's trading records show
A hotel earns from several streams at once, and each comes with its own costs.
- Rooms. Occupancy, average room rate and RevPAR by month, set against the number of rooms.
- Food, beverage and conferences. Restaurant, bar and function income, each with its own staff and stock costs.
- Booking channels. Commission to online travel agents shows as a cost against room revenue, next to direct and corporate bookings.
Documents to gather
The hotel's property management system, its bookkeeping and the accountant hold most of what is needed.
- Payout letters from the current lenders, with any break cost or early payout charge on each
- Twelve to twenty-four months of occupancy, average room rate and RevPAR reports
- Revenue split between rooms, food and beverage, and conferences
- The company's last two years of accounts and lodged returns, plus recent BAS and the ATO account statement
- The liquor licence for the bar and restaurant, and any lease to a tenant in the building
- Quotes and a schedule of works for the next refurbishment
- Each director's personal loan and card statements
Hotel refinancing questions, answered
The new valuation came in lower than what we paid. What happens to the loan?
The 50% to 65% LVR band is measured against a current valuation. If the balance sits above that, the gap can be met by paying some down or adding other property as security, subject to the lender.
Should the rooms be refurbished before or after the refinance?
Either order can work. Funding the works inside the refinance means one application and one valuation. Refurbishing first and refinancing later lets the new rooms show up in the trading figures.
Most of our bookings come through booking sites. Does the commission count against us?
It counts as a cost of each night sold, like linen or wages. The profit after those costs is what pays the loans, so the commission is already inside the hotel's profit figures.
We closed a floor for six weeks last year. Will that show?
Yes, room revenue for that year will be lower. Monthly occupancy reports, the dates of the works and the invoices show what caused the dip and that the rooms are back in use.
Will the bank want our house as well as the hotel?
Not necessarily. The hotel freehold and a charge over the company can be enough, depending on the lender. Adding the house can change the rate and term on offer, though the hotel's debt would then be secured on the house.
The interest-only period on the loan for our freehold ends next year. What are the choices?
The loan can move to principal and interest, be refinanced with a new interest-only period, or be refinanced on a new term, subject to the lender. Principal and interest raises the repayment, and the term decides by how much.
Can the loan on the freehold move to a new lender while the other two loans stay put?
It can, subject to the lender. That is one of the options worked through for this hotel: repricing the loan on the freehold alone while its other two loans stay unchanged.
Our lender wants a revaluation at the annual review. Can we move before then?
You can. The hotel can move before the review date, once any fixed-rate break cost has been weighed up. A new lender can order its own valuation either way. The revaluation and the other checks at an annual review are set out in our guide.
Will refinancing now affect buying a second hotel?
It can. Whatever repayments the hotel carries after this refinance sit alongside the loan for a second purchase. Property pledged now is already committed to this loan, which limits what it can back next.
What do we pay up front to move the hotel's loans?
Any fixed-rate break cost, any charge for paying out the equipment contract early, plus valuation, legal and establishment fees. Having each one in writing shows whether the saving outweighs them.
Talking through the hotel's loans with us
Every loan the hotel carries can be matched to how long its assets last, when the rooms next need work and when the busy months arrive. Ardent Capital Group's help covers the loan on the freehold going concern, finance for refurbishments and equipment, and business loans and working capital for hotels. Drawing on a background in financial planning, the Ardent Capital Group team can map out how the new loans suit the hotel, with your accountant confirming the tax side. When the time suits, we would welcome a conversation about the hotel's borrowing.
