The project will create 18 new bedrooms at the grade II listed hotel in Church Street. It will also create 12 new jobs.
The funding from Lloyds Bank Commercial Banking will allow the hotel to increase capacity by 20% to 86 bedrooms in order to cater for increasing demand.
MGM Hotels director Martyn Murphy said: “This expansion marks a major milestone for us and our brand and supports our vision for continued long-term growth.
“We have been working with Lloyds Bank since we took over the business 13 years ago. The team fully understand what we are trying to achieve and, with the latest funding package, we are now able to meet customer demand as well as improve guest experience.”
Phil Davies, relationship director at Lloyds Bank Commercial Banking, said: “This expansion gives The Old Palace Lodge Hotel the opportunity to build on its established reputation, as well as create new jobs in the area.
“We are committed to helping Britain prosper by supporting small-to-medium sized businesses like MGM Hotels, which is why, since the start of 2011, we have grown our net lending to SMEs by 31% while the market has contracted by 12%.”
Image: Martyn Murphy (left) and Phil Davies.