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Banks hit back at overdraft claims in Good Hotel Guide

10 November 2011 by
Banks hit back at overdraft claims in Good Hotel Guide

Accusations this week by the Good Hotel Guide (GHG) that British banks are failing the hospitality industry - by withdrawing their support from well-run, profitable hotels - have been resoundingly refuted by the financial institutions.

Adam Raphael and Desmond Balmer, editors of the GHG, which launched its 2012 edition on Monday, attacked the banks for withdrawing overdraft facilities, without warning from several of its rated hotels, whose properties are worth more than £5m each.

In particular, they highlight one hotel, owned by the same family for 30 years, which was told that before the facility could be reinstated, it would have to call in consultants. When the hotel did so at a cost of thousands of pounds, the local bank manager said he "never bothered to read such stuff".

Another profitable hotel was told by its bank that it had withdrawn its overdraft facility because it had not been used for two years, and insisted that it could only be reinstated at 6% over base rate, because "hotels were a very risky business".

Raphael and Balmer said the banks are penalising successful hotels as a consequence of their lamentable record in lending to unstable businesses.

"If either Lloyds or Barclays, the two principal creditors of the failed Von Essen Group, had made even the minimum of inquiries, they would have found out that the group was not rated highly by the hotel industry," they said.

Three of the UK's leading banks, Barclays, HSBC and Lloyds Banking Group, have all hit back at the allegations, emphasising that they are willing to do business with the hospitality industry and lend money to strong, well led businesses.

A spokesman for Barclays said that it remains a strong supporter of the industry and in particular points to funding it has provided this year to established businesses such as the Crowne Plaza London - St James, 51 Buckingham Gate, and Orient Express Hotels, as well as Halcyon Hotels and Resorts.

Huw Morgan, head of business banking at HSBC UK, said the bank would never look to remove facilities from existing customers unless requested by the customer. "We are committed to increasing the support we provide to UK businesses and in the first six months of 2011 our total UK commercial banking lending book grew by 7.4% year on year," he explained.

"The key criteria for any business looking to borrow funds, to invest in their business, are the financial strength and viability of the business together with the knowledge and experience of the management team."

Meanwhile, the Lloyds Banking Group would not comment on claims made by the GHG regarding Von Essen whilst an investigation by the City of London police into the conduct of Von Essen executives, in the run up to the company being placed into administration, is ongoing.

However, a spokesman for the group said that where a hotel is experiencing financial stress, its team of specialists in its Corporate Real Estate Business Support Unit will help hotel companies through economic difficulties.

However, Bev King, founder of Z Hotels, a newly launched group with two properties opening in London and one in Liverpool over the next 12 months, at a cost of more than £12m, said that his struggle to get finance from the banks for the project was typical of that currently being endured by many hoteliers across the UK.

"I spoke to two or three banks and from very early on it was made clear that until I was in a position to generate cash and service the cash, they wouldn't even look at me," said King, who eventually received support from a group of private investors.

"I have been trying to raise money from the banks for the past four to five years, but they have made it prohibitively difficult to do so by putting in place an unachievable range of barriers. My 20 year's track record as an executive with Thistle Hotels and, before that, with Forte Hotels, counted for nothing."

CREDIT-EASING MAY HELP EASE THE BURDEN OF CASH-STRAPPED HOTELS

Credit-easing could become a means of injecting badly needed cash to small businesses by bypassing the banks, the Chancellor of the Exchequer, George Osborne, told the Conservative Party Conference, earlier this week.

Osborne wants small businesses to have the same access as big business to money raised directly in the bond markets. Although it is not yet known how the policy will work or how much money is involved - although it is believed to be billions - he is expected to announce further details during his autumn statement on 29 November.

By Janet Harmer

E-mail your comments to Janet Harmer here.

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