Banks hold the key to growth for hospitality businesses

By Luke Nicholls

- Last updated on GMT

Related tags: Hotel, Investment, Finance

Forty-seven per cent of businesses will seek additional finance to fund growth over the next two years
Forty-seven per cent of businesses will seek additional finance to fund growth over the next two years
Nearly half of hospitality and leisure businesses are hoping to obtain additional sources of finance to assist with their expansion over the coming months as many look to return to growth in 2012.

This is one of the findings of new research from accountancy firm RSM Tenon. The research, entitled ‘A Return to Growth?’ surveyed over 100 UK-based business owners within the hospitality and leisure sector including various hotels, restaurants, bars, pubs and clubs.

Although 63 per cent of these businesses believe that the current economic crisis would be the biggest barrier to expanding their business, just over one in three said they would be launching new products and services within the next two years, with 62 per cent looking to refresh their existing products and services.  

Forty-seven per cent of businesses are looking to additional sources of finance to assist with their growth plans over the next two years. Although bank loans are the most popular source of additional finance, just over 10 per cent said they would be using their overdraft facility to help with their growth strategy, and nearly one in six look to their shareholders for additional funds.

“Funding from banks is difficult, especially for many independent owner-operators,” said Ufi Ibrahim, chief executive of the British Hospitality Association. “They might like to add a few rooms, or refurbish, or bring in new facilities, but it is difficult to persuade the banks to provide them with the funds, even though the business case is strong.”

Return to growth

Jonathan Perrin, RSM Tenon’s head of hospitality and leisure, added: “The sector has really felt the effect of the economic downturn over the past few years, and I suspect the high number of hospitality and leisure business owners looking for additional funds reflects the fact that they are looking to return to growth in 2012.

“It would be disappointing if these businesses were unable to access the additional funding needed to expand their businesses. This is an important year for the sector with the additional tourism expected as a result of the 2012 Olympics and the Queen’s Diamond Jubilee, and I think it would be short-sighted for lenders not to recognise that businesses will be looking to take advantage of this.”

BigHospitality has reported on a number of major investments and private equity backing deals in the past month alone: 

  • Northern pub chain Wear Inns has received an investment of £10m from the Business Growth Fund​ (BGF) and NVM Private Equity (NVM) to fund expansion plans for the company, which expects to make new acquisitions in the next few months.
  • YTL Hotels, owned by the Malaysian-based conglomerate YTL Corporation Berhad, has received a £20m loan​ to fund its plans for a redevelopment of the Gainsborough Building in Bath and two other buildings into a five-star hotel and spa.
  • Rex Restaurant Associates, the company headed up by experienced restaurateurs Chris Corbin and Jeremy King, has received private equity backing​ to fund expansion plans for the group that owns The Wolseley.

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