By Hilton Foster, Director of Debt Finance at OakNorth Bank
The hospitality sector has been incredibly hard hit by the pandemic. According to the latest Future Shock report from CGA and UK Hospitality, the sector recorded a staggering £53.3bn year-on-year drop in sales between the start of April 2020 and the end of September 2020.
Anecdotally, we’ve heard from many operators that traditional high-street lenders have at least temporarily, given up on lending to hotels, or are undertaking re-pricing strategies, so sourcing finance is proving problematic for many hoteliers, even for prime assets.
One of the issues is that most banks tend to lump all businesses into one of a dozen or so categories – for example, all restaurants, bars and hotels are classified as “Hospitality”. This disregards the fundamental differences in how these business operate and makes it harder for banks to design bespoke facilities for each business. The experience of an all-inclusive destination resort throughout this pandemic for example, is likely to have been starkly different to an airport hotel or a business conference hotel.
That is why at OakNorth Bank, we take the time to understand each business and assess each loan on its individual merit, rather than painting all businesses in a sector with the same brush.
Since March 2020, we’ve held over 650 credit committees and last year, completed over £1B in new loans to businesses from a variety of sectors and regions across the UK. In hospitality alone, we have approved tens of millions of pounds in new loans since the pandemic began, including:
Due to our expertise across both property development and SME trading, we can tailor a facility that allows hotel businesses to buy the site, develop the hotel and cover the initial costs of operating it. This compares to many other lenders who will typically only focus on the either the development or trading aspects of a new business.
We’re one of the few lenders that will provide a financing solution for the whole process and can stretch this out over a five-six year term, so we are working with these businesses effectively from start up all the way through until they’re mature. Of course, this type of facility needs to work for both us as the lender and for the borrower, so typically interest payments will be higher during the initial buy and build / development phase. They will then reduce once the borrower completes the development and the hotel is operational, and then reduce again once the hotel hits its forecasted numbers. By covering buy, build and stabilise under an agreement with ratcheted rates, the borrower cuts out the need to spend time refinancing once a new hotel is built out.
If you’re an experienced hotelier or restaurant owner reading this and think we can support you with your future growth ambitions, please get in touch – Hilton.firstname.lastname@example.org.