The Health of Hospitality & How First Merchant Helps

The UK hospitality industry is a multi-billion pound machine, which greatly contributes to the UK economy. A key vessel to other industries such as tourism and transport, hospitality is a main attraction for UK investment. In 2019 the economic output of the hospitality sector was £59.3 billion, approximately 3% of total UK economic output. Hospitality businesses represented 3-5% of businesses in each country and region.

Despite the reliance on hospitality from the UK economy, since the pandemic the industry has been struck with overwhelming challenges. From recruitment to supply chain issues, funding to trading restrictions, hospitality racked-up £114.8bn of sales lost in 2020/21.

With this in mind, we spoke to Richard Hamlin, Director at First Merchant, on how and why they help fund hospitality businesses and the state of play of the industry….

Tell us a bit about yourself and your work with First Merchant

First Merchant Finance Plc was founded in 1995 by my father, Tony Hamlin, who is Managing Director. I have been part of the company as a loans underwriter for most of that time. First Merchant is a privately funded lender which exclusively funds Hospitality and Leisure businesses. Our main clients are restaurants, pubs, hotels, nightclubs and fast-food outlets.

Why does First Merchant only fund hospitality businesses? When starting out, did you see a gap in the market?

Our family’s expertise in the hospitality and leisure finance marketplace long pre-dates First Merchant. It’s a sector we know very well and over the decades have built up a considerable expertise across the board. This ranges from single unit businesses to multi-venue groups. Yes, there is a huge need for straightforward and reliable funding for our nation’s hospitality businesses. In fact, there has always been a reluctance from many high street lenders to support pubs, restaurants, hotels etc. with their funding requirements.

How does First Merchant differ from finance companies who offer funding to businesses?

First Merchant focuses all of its efforts on helping operators to improve and expand their businesses. We specialise in lending on short leaseholds because almost all hospitality businesses trade from such premises. Most other lenders, including the high street banks, place a value of zero on a leasehold business. This is the opposite of how we make our assessments.

Another major difference is the flexibility with which we lend. Clients may borrow in tranches of £50,000, only paying interest on what they borrow and we do not charge any fees. Perhaps most importantly, we offer a personalised service and look after our clients carefully as they grow and help them to solve problems along the way.

There have been growing calls from hospitality campaign groups for the VAT rate to be reduced again. Do you think the hospitality industry is well served and sufficiently protected by UK government and governing bodies?

The government did an awful lot to support the hospitality sector during the pandemic – there can be no doubt about that. UKHospitality is an excellent and vocal advocate for the industry and it works tirelessly to promote the interests of operators. However, there is certainly a debate to be had about VAT levels, energy price caps and, of course, business rates which are ongoing concerns for all those trading in the sector.

Lenders have a key role to play in these challenging times. If credit is not readily available to well-run and established businesses, then legislation can only do so much to help. First Merchant delivers immediate working capital funding and group expansion finance within a short timescale.

Where do you see the UK hospitality industry going in five years’ time? Can it sustain the economic pressure it’s currently facing without any serious consequences, or will it require continued investment from companies like First Merchant, as well as government entities, in order to survive?

Promoting and supporting our hospitality, retail and tourism sectors should be a priority for every British government. As we all know, these sectors bring prosperity to our nation and employment to millions. It is generally reckoned that London has now surpassed both Paris and New York as the world’s capital for restaurant cuisine. This is an amazing achievement which has attracted investment and enterprise to the UK.

There are some serious headwinds which the sector is facing but hospitality operators are hard-working and ambitious people. I feel confident that all those who provide a good service to the public will not only survive but thrive in the years to come.

We hope this has outlined to you the current state and challenges which face the UK hospitality industry, and how First Merchant can help. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.