Hospitality isn’t high risk, it’s just misunderstood
Hospitality has become one of the most closely scrutinised sectors in SME lending. In some credit circles, it’s almost shorthand for volatility. But I believe that perception deserves challenging.
The past few years have tested operators. Post-Covid demand delivered a strong rebound in 2022 and 2023, particularly in regional markets benefiting from domestic tourism. 2025 proved more difficult. Margins were squeezed from multiple angles: wage increases, energy costs, supply inflation and, for rural or coastal venues, ongoing labour shortages.
But that does not make the sector fundamentally unsound.
From a credit perspective, what I see is differentiation, not systemic weakness. Well-managed businesses with sensible leverage, disciplined cost control and realistic pricing strategies are continuing to trade effectively. Others, particularly those overextended or slow to adapt, are understandably under strain. The risk lies in failing to distinguish between the two.
For brokers, the challenge is navigating lender appetite where some take a broad-brush view and step back from hospitality entirely. That can mean viable, asset-backed businesses struggle to access funding.
One recurring issue is over-reliance on historic accounts in isolation. Hospitality businesses are rarely static. They refurbish, reposition, expand their offer or restructure management. A single trading year can represent transition rather than long-term performance.
In my view forward projections therefore have a legitimate role, provided they are credible. Where a business is investing or restructuring, forecast performance should be evidence-based and ideally supported or certified by an accountant. This is an area where brokers can add significant value. Unsupported optimism does little to strengthen a case. While well-prepared projections, accompanied by clear commercial rationale, add real substance.
Location is a key characteristic and security remains central. Many hospitality operators trade from substantial property assets: pubs, hotels, leisure venues and mixed-use sites in established locations. Strong underlying security and cashflow variability can coexist and a sensible credit assessment considers both.
There are early signs of wider economic stability. Inflation is easing and interest rates have begun to soften creating a more predictable environment than we saw last year.
That does not eliminate operational pressure, but it does reduce uncertainty.
For brokers presenting hospitality cases today, three things make a difference:
- Multi-year trading context rather than a single-year snapshot
- Realistic, accountant-supported projections with sound commentary
- Clear explanation of how labour and cost pressures are being managed
Hospitality is evolving, not retreating. Good operators with strong security and credible plans remain fundable. It’s not a sector to approach casually but it’s not one to avoid. It requires judgement, and in credit, judgement still matters.
