Owners of the Petwood Hotel are holding talks with council planners in a bid to plug a short-fall in an ambitious restoration programme.
The hotel aims to raise more than £1m to pay for restoration of its historic gardens and additional work to the main building.
It is planned to fund the projects by building new homes in the hotel grounds.
However, planners at East Lindsey District Council rejected an application earlier this year, saying they required further details.
There were also concerns about the loss of established woodland.
Now, the Petwood has submitted a revised application for nine homes in a different area of the grounds.
Eight would be built in a former walled vegetable garden while the remaining property would involve converting a gatehouse.
However, a director of the Petwood Hotel has admitted the new scheme would not generate as much revenue as the initial plan.
Emma Brealey, speaking at a meeting of Woodhall Spa Parish Council, did not reveal an exact figure for the new project but confirmed it was less than £1m.
Miss Brealey said talks were on going with planning officers to ‘maximise’ the income that could be generated from any development.
She added planners were keen to back the project because they were keen to see the restoration work go ahead.
Questioned by parish councillors, Miss Brealey did not rule out the possibility of building more homes.
She said: “Clearly, we don’t want to see houses springing up all over the place but there is a short-fall and we need to do something about it.”
Miss Brealey stressed the redesign of the new houses meant they were more in keeping with Woodhall Spa.
Parish councillors had raised several concerns about the initial project but decided to support the new application.
Council chairman David Clarke said: “Ideally, I do not want to see new homes in that particular location but it is probably a case of accepting them to ensure the future of the hotel.”
Coun David Hill backed the scheme because of the garden restoration while Coun Jo Nelstrop pointed out the new site involved felling less trees.
A final decision will rest with ELDC’s planning committee in the new year.