Funding for a hotel industry in crisis
TL:DR The hotel industry is in crisis. Covid and lockdown mean that travellers are not travelling and guest numbers have fallen to almost nothing, and the latest quarantine rules are making summer holidays in 2021 even less likely to happen. At Rangewell, we have solutions which can help - and specialists who can put those solutions to work to provide a lifeline for your hotel business. The world-wide disruption caused by the COVID-19 pandemic has created a very real crisis for the hotel industry. Although there was a glimmer of hope as the first lockdown was gradually eased in the second half of last year, the return of the disease with increased infection rates has meant that there are simply no guests to welcome. A very small number of business travellers may still need rooms, but with no tourists - and no end to the crisis in sight - the future for the hotel industry is looking challenging. According to the latest government regulations to combat the spread of Covid, almost all hotels, hostels, guest houses and campsites must stay closed at least until the current lockdown emergency is over. Of course, there is hope for the future. The vaccines now being administered could spell the end of the coronavirus - but their effect will not be felt for months - and it is already looking as though 2021 will see little in the way of tourist business, even if the recovery has begun. It is clear that the hotel industry is now in crisis and that it will be some time before it returns to business as usual - and during that time, the financial challenges will be growing. What are the challenges? Hotel owners and their financial backers have had to look hard at the impact on the industry, their businesses and their funding arrangements. At Rangewell, as experts in business funding and with a specialist teaming working to find financial solutions for the hospitality industry, we look at exactly what the challenge may be - and what solution can be available. “The simple fact is that we have no guests coming in - and that means we have no income coming in either. Usually, January and February tend to be slow, but we should be looking back on a lucrative Christmas period, with everything from works parties and family get-togethers to people just wanting to get away for a break. This year, we had none of that to look back on, and bookings for the next month are non-existent.” Hotel owners need to come up with new strategies including reaching out to lenders, extending the term of any existing loans and requesting interest payment holidays to ease cashflow concerns. At Rangewell we know that many hotel owners have done what they can to weather the Covid storm. Putting staff on furlough is one way of cutting costs - but dealing with existing finance commitments is a major cost, and together with utility bills and vital maintenance mean that there is still a steady drain on any reserves that they may have. What can you do? Have an extended cash flow forecast for the next six months. Include downside scenarios to understand critical cash points and any breaches of lending covenants. Manage your payments to suppliers. Minimise all discretionary operational and capital expenditure. Postpone maintenance and other capital expenditure where possible. Put in place an advanced revenue management system and pricing models to respond to market developments quickly. Assess the equity or debt funding sources available. Be transparent towards existing lenders and involve them in the mitigating procedures and continuity plans. Apply for the tax refunds and other financial relief measures. Looking for solutions to help your hotel through the crisis? Contact our team today for ways to help your business survive. The biggest problem may be providing working capital. Even where hotels are closed, there will still be substantial costs to cover ensure that security and health and safety standards are maintained. For hotel owners, one of the key questions will be how to fund the key working capital requirements of the business at a time when income has completely dried up. The Coronavirus Business Interruption Loan Scheme (CBILS) may be able to provide some support. It is a government-sponsored scheme which can deliver loans of up to £5million from high street banks which will be interest-free for the first year, and have recently been extended to repayment terms of up to 10 years with nothing to repay for the first 12 months. The UK Government will provide the lenders with a guarantee of 80% of the amount of each CBIL loan. For businesses with a higher turnover the Coronavirus Large Business Interruption Loan Scheme can allow borrowing of up to £25m. The government is committed to supporting businesses through the lockdown, and these loans should be a powerful tool to help businesses survive. However, these are commercial loans and lenders are required to carry out full underwriting process on loan applications and ensure that hotel owners satisfy the requirements of the scheme. In practice, many hotel owners have found the CBILS scheme difficult to access. Initially, at least, those lenders who offer the scheme were inundated with requests for funding and had to process those applications with their entire team working remotely, whilst also having to deal with requests for covenant waivers and hotel closures on their existing loan portfolio. However, although the government is underwriting CBILS, many lenders will not advance funds under the scheme to the hospitality sector. Why will lenders not lend? “Our bank manager wanted to be helpful, but when we saw him, he looked at our figures, and said that his hands were tied, and he was sorry, but he could not help us.” The problem seems to be that the lenders have become reluctant to lend to many sectors because of the uncertainties of Covid. They base their lending decisions on risks, and with no sure end in sight for the crisis, they see that some sectors have a future that is at best unpredictable - and which could be financially unsustainable. Some lenders believe that the hospitality industry - and particularly hotels of all sizes - are particularly vulnerable. Some, we have found, have placed blanket bans on lending to the sector, and even with government support via CBILS and the smaller and more agile Bounce Back Loan scheme, they cannot offer the financial support that is so desperately needed. In fact, there is acceptance in the hotel lending community that hotel owners will breach the financial covenants in loan agreements. Some lenders have already adopted a flexible approach and waived financial covenants and provided repayment holidays for an initial period until hotels re-establish trade. But new lending may be particularly difficult to secure. Despite the doom and gloom from some lenders, business sector analysts, Knight Frank, have estimated that the UK hotel will rebound strongly once the economy recovers. It anticipates a V-shaped, stepped recovery with occupancy growth stronger during the initial phase of recovery and rebound in revenue per available room to fully recover once travel restrictions are eased and long-haul inbound visitors return. It means a growing financial crisis for the hotel industry. Why Rangewell? At Rangewell, we are working to find solutions for hotels that have run into problems because of the lockdown. We have a specialist team with expert knowledge of the sector, and we know lenders that may still be prepared to advance funds. Unlike most business funding services, we can search the entire lending market to find funding for our clients. Our service is personal. We assign a finance expert to work with everyone who approaches us, who can discuss needs, and often, suggest unexpected ways to offer funding solutions. Then, we can use some sophisticated software to identify the most appropriate sources of funding for each case. Our Rapid Algorithmic Matching Platform (RAMP) technology can quickly identify a list of lenders which might be willing to provide finance to the borrower, based on our understanding of the scale of the needs and the amounts required. The size of the loan required, the sector and the credit status of each client all influence which lenders who are most likely to be receptive to an application. By automating the process, we can search the entire lending market in seconds. Our fintech platform system can also generate a digital fact-find, which means we can sense-check proposals quickly and efficiently. Once we have our shortlist of appropriate lenders, we can approach our contacts within those banks and other financial providers. Armed with data and documentation updated in real-time, we can support lenders throughout the underwriting and due diligence process. Because of this, we can accelerate the process of completing and drawing down the loan. It not only means that we can find lenders prepared to advance funds when others cannot, but it also ensures we can streamline the application process - allowing the funds to be available for drawdown in the shortest possible time. Rangewell’s APIs into Companies House and the Credit Agencies, as well as its automated fact-find technology, provides clear insight into each client and their requirements. We are independent and we know the entire lending market. That means we can take a view that will put your interests first - and if you have not been successful because of your bank’s lending policies, we will work to find one that is more sympathetic. Ready to find the answers to your funding needs? To find out more call the Rangewell Covid crisis funding helpline on 020 3318 2613 or email [email protected] Talk to Rangewell – the business finance experts
Funding for clients to support your accountancy practice
A £70,000 loan for a hotelier client The UK hotel industry ranges from large corporate chains to the traditional seaside B&B. Many sectors are fiercely competitive - and the operators within can experience volatile trading. This has led to the business sector being seen as a major risk by many lenders. The challenge We were recently approached by an accountant whose client was a small hotel business on the outskirts of London. The client had committed to a major programme of refurbishment and improvement - but their bank pulled out of lending at the last minute. “My client had been badly let down through no fault of his own. I was very keen to help - but if I was going to find an answer for them, I would have to do so fast.” The client had large premises in a converted country house, and with the M25 close by, had enjoyed some very profitable seasons, mainly with business travellers. However, in recent years, customers were not coming in the same numbers as they had done in the past - the opening of one of the major chains nearby had reduced their residency levels. The problems were getting worse, and with takings almost 20% down on the previous year, the client looked at the possibilities of investing in the business. He believed that the leisure market might offer the best prospects, and decided that the best approach would be to create a spa, which would support him in extending his customer base. “It made sense. It would mean bringing more people into the spa during the day when business was at its slowest, and it would mean tapping into the affluent female market. My client had shown me his financial predictions, and they seemed sound to me. It would bring in more visitors who would stay for the evening when the bar and restaurant could offer more sources of revenue.” The client had been proactive, found a company that could fit out some underused outbuildings as a spa area, complete with treatment rooms and who could also refurbish the pool. He had approached his bank and explained his business proposition. The bank saw how the proposal could work and saw no problem in advancing £70,000 to cover the project. The client had already authorised work to begin when the bank called him to say that they were withdrawing the offer. “The bank had looked more closely at my client's accounts for the last year, which I had just prepared, and withdrew the loan offer. They felt the fall in profits showed that the hotel was in trouble and, as a result, it no longer met their lending criteria. Suddenly, I had a client with a major funding shortfall - and no way to fill it.” The accountant knew that fast action was required, and called us at Rangewell. Do your clients have problems finding the funding they need to grow? Would you like to help them and introduce a new revenue stream for your own business? Find out more about becoming an accountancy partnership How Rangewell helped We looked at our lenders, and saw that to provide £870,000 at short notice would be costly. Lenders who saw the same potential affordability problems that deterred the bank would also be unwilling to lend. Those that could offer this level of funding might impose punitive interest rates. However, although no lender was prepared to offer the full £70,000, it was possible to find smaller loans - both of £35,000 - from two separate lenders. Both lenders demanded high rates of interest - with 15% and 18% - because of the risk the client presented. However, we were able to negotiate an early repayment option. If the client was able to repay his loans early, he would not face any penalty - substantially reducing his costs. “My client was in a very difficult position. Rangewell found me a lifeline that I could throw him - and which meant that I could help him save his business for the short term - and for the longer term, help him get back to full profitability.” At Rangewell we know that getting the agreement that is appropriate for your business can be essential in order to keep your costs down. We can help you arrange all types of business funding - including finding solutions when your business circumstances are challenging. We can help you arrange all types of business funding for your clients - helping you deliver an even better service to them, and creating a potential additional income for you. Simply call us at Rangewell or find out more about becoming an accountancy partner.