Unsecured Business Loan for Experienced Hotelier

• Client: Experienced hotelier and company director in the hospitality and care sectors
• Project: Upgrade of an established three-star hotel to a four-star standard
• Challenge: Existing commercial lender would not permit a second charge, while the newly acquired hotel had only been trading for six months
• Finance: £257,500 unsecured business loan over two years

Unsecured business finance can provide an alternative source of funding where a business owner does not have the option of securing additional borrowing against a property. I recently assisted an experienced company director in the hospitality industry who needed finance to upgrade a newly acquired hotel.

The client had considerable experience across the hospitality and care sectors and had previously owned and operated several businesses. He had recently acquired a three-star hotel and wanted to invest in the property with the aim of bringing it up to a four-star standard.

The proposed works included extending the hotel and upgrading its bedrooms, restaurant and communal areas. However, the client quickly encountered an issue with the existing finance. The lender that had provided the commercial mortgage on the hotel was not prepared to allow a second charge against the property.

This meant that a conventional secured loan against the hotel was not an option. There was also another complication: the client had only been operating the newly acquired hotel for around six months, meaning there was not yet a sufficiently long trading history for the hotel itself to support the additional borrowing.

I therefore looked at the client's wider business interests rather than focusing solely on the new hotel. His other businesses had a strong track record, supported by company accounts that demonstrated his previous success and provided evidence of his ability to service additional borrowing.

This opened up the possibility of an unsecured business loan based on the strength of his wider business position. I approached a peer-to-peer lender with which I had an established relationship and presented the client's circumstances, including his experience in the hospitality sector and the financial performance of his other businesses.

The lender was comfortable with the overall proposition and agreed to provide an unsecured facility of £257,500. The loan was arranged over a two-year period at an interest rate of 9.5% at the time.

The facility gave the client access to the capital required for his hotel improvement plans without requiring a second charge against the property. It also demonstrated how an experienced business owner's wider financial position can sometimes be relevant when a newly established business does not yet have sufficient trading history to support additional borrowing on its own.

The case highlights the role that specialist commercial finance can play when conventional secured lending is not suitable. For experienced business owners, an unsecured business loan may be an option where there is a strong underlying business proposition and sufficient evidence of the ability to service the borrowing, subject to lender criteria.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, business performance and lender criteria. Terms, rates, fees and availability may vary depending on individual circumstances.

Risk Warning:
Business borrowing creates financial commitments that must be maintained. If repayments are not maintained, the business may face financial difficulty and other consequences depending on the terms of the facility. Interest rates and borrowing costs can also vary between products and lenders.