Credit crunch is stifling innovation in hospitality

04 June 2008 by
Credit crunch is stifling innovation in hospitality

The credit crunch is stifling innovation in hospitality because newcomers to the industry cannot raise funds to start-up new businesses, City experts have warned.

While the hospitality industry does not have a shortage of willing entrepreneurs, difficulties in raising finance will reduce the number of new concepts, at least in the short-term, they said.

Christopher Heard, director at Marlborough Leisure, which provides unsecured credit to the hospitality industry, told Caterer that even though there was a high volume of enquiries for credit for new business, obtaining it was difficult.

"We look to tick three boxes; relevant experience, a clean credit history and an appropriate cash share," he said. "We are finding that, while we have a lot of enquiries, they are hardly even ticking two boxes let alone three."

The tough market for credit was leading to some innovative hospitality entrepreneurs "waiting and watching" until they could launch their new business concept, Heard added.

James Ainley, hotels and leisure analyst at investment bank JP Morgan, said it was becoming easier for established businesses to raise funds compared to new operators, as the fall in commercial property prices and squeeze on consumer spending had made financiers far more wary.

"My sense it that established businesses are able to refinance, albeit it more expensively, but the difficulty comes with new projects and start-ups where the risk is higher - it is much harder to get incremental debt," he said. "There are some pockets of private equity money that are prepared to back new concepts, but that will only work if they are not reliant on taking on too much debt."

A source at one of the major banks confirmed that its lending decisions were now largely based on experience. "It's not a good time for inexperienced start-ups. But, if you've got a track record, you'll be fine."

Long-term steady growth predicted for hospitality operators >>

Don't panic - crisis talk goes too far, say industry experts >>
A big test for private equity >>
Nurture partnerships to help survive business downturn >>

By Christopher Walton

E-mail your comments to Christopher Walton here.

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