Hotel and restaurant loan write-offs soar 65%

Write-offs of loans to restaurants and hotels rose by 65% during the course of the pandemic, with £99m written off by banks and other lenders in 2020/21, up from £60m the prior year, according to audit, tax, and advisory firm Mazars.

The firm found that write-offs in lending to the leisure sector are starting to rise once again as Covid pressure “begins to bite” for hospitality, which has been hit hard by the financial strain of successive lockdowns. 

In addition, banks that had been attempting to collect unpaid loan repayments from struggling businesses in the sector are said to be increasingly writing them off as bad debts.

The costs associated with “ramping up” for reopening, such as restocking, equipment maintenance, deep cleaning and new recruitment have been an added burden for struggling hospitality companies, already paying rent for restaurant, bar and hotel sites despite the repeated shutdowns of venues. 

Meanwhile, the furlough scheme, which paid 80% of employee wages and was a “lifeline” for many businesses, winds down entirely at the end of September. In addition, difficulties recruiting staff to work in the leisure sector and requirements for social distancing have impacted businesses’ ability to operate at pre-pandemic levels. 

For the hospitality industry, the end of the moratorium on winding up petitions on 30 September 2021 and the end of the suspension on landlord action for rent arrears in March 2022 will also cause further difficulties, according to Mazars, and “likely trigger a sharply increased number of insolvencies in the sector”. 

Rebecca Dacre, partner at Mazars, said: “As support from the government starts to wind down, we’re now beginning to see the true impact of the pandemic on the leisure and hospitality industry. 

“It is clear that we have yet to see the full extent of the pandemic’s financial impact on hotels and restaurants. However, the data is now starting to show more signs of stress in the sector.” 

She added: “Businesses that are just keeping their head above water are likely to be taken under by the end of government support schemes, the repeated cost of reopening and restocking, difficulty recruiting staff and lower occupancy or covers due to people’s changing habits or working patterns. 

“Those businesses that have benefitted from UK tourism this summer may still find themselves looking for support after the holiday season ends.”