Weakening currency strengthens case for funding UK hotels

Whilst the antics of Basil and Manuel of Fawlty Towers fame may not have done any favours for the image of British hotels in the 1970s, today’s hotel sector is an increasingly important part of the UK economy.

The market is large, with a total of around 700,000 rooms, just under 50% operated by smaller independent businesses. It is often these companies that are overlooked when it comes to accessing funding. We explore why this may be in a sector showing such promise.

Stable at the inn

Hotels are a good, solid business proposition. Market analysis shows that these are stable, robust businesses. Occupancy rates average at 82% in London, 76% outside, with lows at 80% and 68% respectively. These are predicted to be stable for 2020.

What’s more, in a sluggish economy beset by worries, they are still expected to grow. Capacity is also increasing to accommodate this growth – up 2.8% in London and 3.3% in the Regions, this year. Beyond that there is a further 8% capacity in the pipeline in London and 5% regionally. [1]

The fall in sterling against € and $ could well increase inward bound tourism to the UK, which would benefit London and South East in addition to staycation trends by UK consumers.

In spite of all this positivity, one survey of lending to European (inc UK) hotels found that “new hotel lending for high-street banks is likely to be for either new acquisitions or refinancing, with almost all respondents agreeing that alternative lenders will become more prominent for riskier projects”.[2]

What’s meant by riskier – the ones the banks are more reluctant to deal with? Well, it doesn’t (necessarily) mean the Bates Motel of Hitchcock’s Psycho.

Whilst there was a greater level of hotel deals in 2018, traditional lenders have an inherent bias towards loans to larger business, because traditional lenders’ capital adequacy rules, simply put, say big equals safe. So that can leave the three-quarters of independently run hotels in a bit of a bind when it comes to finding finance, however strong their finances, management or business plan.

Room Service

We don’t agree, mainly because we’re not a bank, so are not bound by post financial crisis regulations designed to bolster banks’ balance sheets and de-risk their lending.  This gives us the freedom to look at the sector and, more importantly, individual business on their own merits

What’s the turnover, how experienced is the management team? Not least, do our experienced credit team believe that the business plan can drive the business, securing the loan capital of our lenders, and the future of the borrower?

Local knowledge of the business and an understanding of the economic conditions in the area are key to the sector and we have regional teams dedicated to just that.

ThinCats’ experts have decades of experience dealing with hotel businesses and others in the leisure industry. We know one size does not fit all. Each hotel has a different customer base, costs, challenges and opportunities. You can’t understand or accommodate that with an online form and a one-size-fits-all algorithm behind it. At ThinCats, you deal with someone who understands how your business works, and will work with you to shape a loan proposition that fits you and your business.

We understand what makes the hotel sector tick. If you’ve got plans, talk to us or your business finance adviser and see if we can help you make them a reality.

[1] https://www.pwc.co.uk/hospitality-leisure/assets/pwc-uk-hotels-update-2019-2020.pdf

[2] https://www.hvs.com/article/8201-2018-european-hotel-lending-survey