Where working capital comes from in hospitality
Hotel finance conversations usually jump straight to the building, because the building is where the value sits. Commercial mortgages and property finance have their place, but they are slow, secured and sized for buying and developing, not for the £40,000 of soft refurbishment, the winter wage bill or the booking engine deposit that actually troubles an independent operator in October.
For that layer of need the realistic routes are a term business loan if the accounts and security support one, asset finance for kitchens, laundry and furniture, and a merchant cash advance sized on the card income the rooms already produce. The advance occupies a particular niche: unsecured, quick, and repaid as a slice of daily settlement rather than as a fixed instalment that lands identically in February and August.
We arrange the working capital layer. Where what you actually need is property finance, a refinance or development money, that is a different product with different specialists, and we will say so rather than force the wrong tool.
A cash advance against room revenue, defined
A merchant cash advance is a purchase of future card receivables: a lump sum now, in exchange for an agreed percentage of daily card settlement until a fixed total is delivered. No interest rate, no APR, no term, no monthly instalment. The cost is a factor rate, typically 1.1 to 1.5; the pace is a holdback, typically 5 to 20 percent of daily card takings, collected by acquirer split or daily direct debit. Sums run £5,000 to £500,000, commonly near one month of card turnover.
Hotels suit the structure for a simple reason: virtually every booking is card-paid. Direct bookings settle through your terminal or gateway, and the mix of advance payments, deposits and on-departure balances produces card flow across the whole calendar, not just at peak. What a funder buys is that flow.
The proportional holdback is the part hoteliers notice first. In the full months the advance clears quickly; in the shoulder months the daily deduction shrinks with the takings. For a seasonal business that alignment matters more than the headline rate.
OTA bookings, gateways and what counts as card takings
The complication in this sector is that not all room revenue reaches you the same way. Direct bookings through your own terminal and booking engine are clean merchant takings, and every funder counts them. Bookings through online travel agents behave differently depending on the model: where the OTA collects the guest's payment and remits to you on a schedule, that income arrives as a platform payout rather than merchant settlement, and funders treat it the way they treat delivery apps in the food trades, counted by many, priced more cautiously by some, ignored by a few.
This makes your channel mix a live underwriting question. A guesthouse taking seventy percent of bookings direct reads very differently from one that lives inside one OTA's collect model, and heavy dependence on a single agent is concentration risk a funder will price.
The practical step is to bring merchant statements, gateway settlement reports and OTA remittance statements together, so the application shows the whole revenue picture. It is also, incidentally, one more commercial argument for growing direct bookings: they are cheaper by the commission, and they are worth more to a funder.
Refurbishment in the off-season window
The trade's defining rhythm is that improvement happens when income stops. Rooms are refurbished in the quiet months precisely because they are quiet, which means the money is spent at the exact point the till is emptiest. Bridging that gap is the single most common reason a healthy independent hotel wants funding.
An advance fits the shape well: drawn in November against the card income of the trailing year, spent on the rooms over winter, repaid disproportionately out of the strong spring and summer settlement that the refurbishment exists to capture. Soft refurbishment is also exactly the spend no lender will secure against; carpets, beds, bathrooms and decoration have no repossession value, which is why asset finance struggles here and unsecured structures step in.
Two disciplines keep it sensible. Size against the trailing twelve months of card income, not against the summer you are hoping for. And keep the works within the window, because a refurbishment that overruns into the season costs you twice, once in works and once in rooms you cannot sell.
Carrying wages and fixed costs through the shoulder months
A hotel cannot scale its costs down to match a quiet Tuesday in February. The building must be heated, insured and staffed at a minimum level regardless of occupancy, and energy has become a brutal line for exactly this trade. The result is a predictable working capital trough in the first quarter that even well-run houses feel.
A proportional holdback is kinder to that trough than a fixed instalment, because the quiet weeks cost less in cash terms. But the honest limit needs stating plainly: the total repayable does not shrink because winter was quiet, you simply carry the obligation longer. An advance smooths the timing of the pressure; it does not reduce the cost of running a seasonal building.
If the underlying position is that the house does not cover its costs across a full year, more funding deepens the hole. That is a conversation about rate, occupancy strategy, or in some cases sale, and we would rather have it honestly than write a deal into it. Our guide on whether an advance is right for you sets out the test.
Kitchens, laundry, bars and the asset finance boundary
Hotels contain several businesses, and some of their equipment needs are classic asset finance territory. A commercial kitchen refit, laundry machinery, a new boiler or air source system: bought new, these are usually cheaper to fund on hire purchase or lease, because the lender holds security in the asset and prices accordingly.
The advance earns its place where the spend is mixed or urgent. A boiler that fails in January cannot wait for a credit committee. A bar refit is half equipment and half joinery no lender will secure. A booking engine migration, new locks and access systems, or the deposit a franchise or soft brand asks for are all soft costs that only unsecured money reaches.
In practice the funding stack for a serious winter programme is often both: asset finance carrying the securable kit at the lower rate, an advance carrying the soft costs and the timing. Arranging them together, sized so the combined outgoings sit comfortably inside the trailing card income, is precisely the kind of structuring a broker is for.
Deposits, chargebacks and how funders read hotel statements
Hotel merchant accounts have features a funder reads carefully. Card-not-present transactions dominate, because guests pay online or by phone. Advance deposits mean money arrives months before the service is delivered. Cancellation policies generate refunds and the occasional chargeback dispute. None of this is disqualifying, it is simply the texture of the trade, and funders who work in hospitality expect it.
What they look for in three to six months of statements is the same as anywhere: consistency and direction, read against the season. A quiet January is normal; a January materially below last January is a question. High refund ratios or a spike in chargebacks will tighten an offer, because they cast doubt on how much of the settled money is truly earned.
Indicative eligibility runs from around three months of card processing and roughly £2,500 a month in card takings, though an established house will usually clear both thresholds by a wide margin. Newly opened properties without card history are not fundable this way yet; our new business cash advance page covers how quickly that changes once the terminal is live.
B&Bs and small guesthouses: the sole trader question
At the smaller end of the trade the business and the owner are often the same legal person. A bed and breakfast run in the owner's name rather than through a limited company changes the regulatory position of any funding agreement: contracts with unincorporated businesses can fall within the Consumer Credit Act at smaller sums, which brings disclosure obligations and protections that pure commercial contracts lack.
Ask any funder, in writing, which regime your agreement sits under before signing. A guesthouse trading as a limited company sits outside the consumer credit perimeter entirely; a sole trader may not. This is not a reason to avoid the product, it is a reason to know which rules protect you.
The other small-house reality is sizing. An advance near one month of card takings on a six-room guesthouse is a modest sum, useful for a bathroom refit or a boiler, not for an extension. For the larger projects the conversation moves toward secured lending on the property, which is a different product and a different decision, not least because it puts the building at stake.
Not a loan, and not FCA-regulated: the position
Because the funder is buying future card receivables rather than lending, an advance to a limited company is an unregulated commercial agreement outside the Financial Conduct Authority's consumer credit perimeter. There is no APR disclosure, no cooling-off period and no automatic ombudsman route. The contract is the protection, so read it: how card takings are defined and whether OTA remittances are inside the definition, whether the holdback can be varied, what happens if you change acquirer or booking system mid-agreement, and what any personal guarantee actually attaches to.
Definitions matter more in this sector than most because hotel money arrives through so many doors: terminal, gateway, OTA remittance, deposits held. An agreement that defines takings loosely can capture more of your revenue than you modelled. Have the definition pointed out to you and check it against your own channel mix before signing.
How we place hospitality funding
We arrange and place with funders, we do not lend, and the funder pays us rather than you. In this sector the placement decisions that matter are which funders read OTA income and which do not, which are comfortable with heavy card-not-present mixes, which will size on a trailing year rather than a weak recent quarter, and which structures sit sensibly alongside asset finance in a winter refurbishment stack.
Send merchant and gateway statements for three to six months, OTA remittance statements if agents collect for you, recent bank statements and a straight account of what the money is for and when the works must finish. What comes back is a short list compared on total repayable and holdback together, with a plain recommendation, including the recommendation toward secured or asset finance where those are the better structure. The mechanics share ground with pub funding where accommodation sits above a wet-led bar, and with restaurant funding for houses whose dining room is half the business.