DSCR: the ratio the bank looks at first
DSCR (Debt Service Coverage Ratio) = EBITDA / (principal + annual interest). A commercial bank typically requires DSCR ≥ 1.30 on a hotel loan. SBA 7(a) US: 1.25. LBO/mezzanine: 1.50. Below 1.00, the hotel does not cover its payments — the file is rejected.
Stress tests: real robustness of the file
A central DSCR at 1.40 may hide fragility. Three stress tests to verify: occupancy −10 pts (covid effect), ADR −10% (competitive or recession pressure), combined double shock (−25% RevPAR). If DSCR falls below 1.00 under double shock, the file is risky for the bank.
Hotel LTV: 65-75% typical
Loan-to-Value = debt / asset value. In LU/BE hospitality, banks finance 65-75% (vs 80% in residential). The 25-35% equity can be complemented by a mezzanine loan (cost 8-12%), seller credit (negotiated with the seller) or a regional commercial fund.
Frequently asked questions
Why stricter DSCR in hospitality?
Higher revenue volatility than in residential rental. A hotel depends on occupancy and ADR, both sensitive to the economic cycle. A DSCR of 1.30 provides a 23% safety margin before default — about one bad quarter.
What if DSCR is borderline (1.10-1.25)?
Three levers: increase equity (lower monthly payment), extend duration (20 → 25 years), negotiate lower rate. Caution: extending duration raises total credit cost. Additional equity remains the cleanest solution.
How to estimate EBITDA if the hotel is new?
Use the Operation USALI tool to build a 5-year P&L forecast with ramp-up (lower year 1 occupancy, progressive over 3 years). Retain the years 3-5 average as stabilised EBITDA for DSCR.