How Lenders and Investors Now Assess Hospitality Assets

Funding decisions are now driven by operating performance — cash flow, margins and cost control — not just asset value

For hotel groups and hospitality businesses seeking expansion capital, the funding environment has shifted in a subtle but material way. Capital has not withdrawn from the sector. Debt and equity providers remain active across the UK and Europe, supported by resilient travel demand and long‑term confidence in the asset class.

What has changed is how risk is assessed. Hospitality capital is now underwritten primarily through an operational lens. Labour availability, wage inflation, margin volatility and cost control have become central variables in credit and equity decisions, often outweighing location quality or brand strength.

Hotels are no longer viewed simply as real estate with an operating wrapper. They are underwritten as operating businesses whose ability to generate consistent cash flow determines fundability.

Why operational volatility reshapes capital availability

Hospitality’s reliance on daily trading income creates a different risk profile from most property sectors. Revenues fluctuate with demand, while costs — particularly labour and energy — are sticky and difficult to flex downward.

As a result, lenders are stressing downside operating scenarios more aggressively. Debt capacity is increasingly constrained by margin resilience rather than peak performance. Equity investors, meanwhile, are placing greater emphasis on governance, operating discipline and visibility on downside protection.

This does not typically lead to outright rejection. Instead, it results in lower leverage, higher equity requirements, tighter covenants and more conditional capital deployment.

What this means for growth decisions

For hospitality groups, expansion capital is now closely linked to operational credibility. Businesses that can demonstrate disciplined cost management, resilient margins and repeatable operating models retain access to both debt and equity. Those relying primarily on demand growth narratives encounter friction as risk is priced more conservatively.

Funding outcomes are increasingly determined by how convincingly operational risk is addressed before capital is approached, not by asset quality alone.

Why Growing Businesses Struggle to Secure Expansion Funding

Funding is available — but it rarely fits the structure, scale or reality of growing SME’s

Growing businesses that are in the £5–50m revenue range often find expansion funding harder to secure than expected. They are frequently too complex for traditional relationship banking, yet not structured in a way that aligns cleanly with institutional equity or large-scale private credit.

Banks, private lenders and investors remain active in this part of the market. The challenge is not availability of funding, but fit. Different providers are willing to engage — but on terms, structures and governance expectations that often diverge from how growing businesses actually operate.

This mismatch between growth plans and funding structure has become one of the biggest challenges for SMEs wishing to expand.

Many businesses eventually realise they sit in what is often described as the awkward middle of the funding market — where funding exists, but rarely fits cleanly.

Too complex for straightforward bank lending.
Too small or founder-dependent for institutional equity.
Too early for large-cap processes.

Why misalignment, not appetite, stalls funding

Banks have narrowed their tolerance for unsecured or lightly secured expansion risk, placing greater emphasis on historic cash flow, collateral and resilience. Equity investors, meanwhile, have become more selective about minority growth investments in founder-led businesses without scalable management structures or clear governance frameworks.

Private credit has stepped into the gap, but often with pricing, covenants and controls that behave more like risk capital than traditional debt.

The result is rarely a clear rejection. More often, founders encounter prolonged discussions, reduced flexibility or capital that feels ill-suited to the realities of their business.

What this means for expansion decisions

Most expansion raises don’t fail outright. They drift.

That drift usually reflects unresolved questions around execution, governance and cash-flow durability — not lack of interest from banks or investors. Where those issues are addressed early, funding remains achievable. Where they aren’t, processes slow, terms tighten, or momentum fades without a clear rejection.

The issue is rarely lack of lender appetite. It’s whether the business is ready for the type of funding it is pursuing.