What are the funding options for hospitality businesses?

The hospitality industry is notoriously unpredictable. Business owners have to manage a constant balancing act between fixed overheads and highly variable revenue, with pubs, restaurants, and hotels facing some of the highest operational costs in the sector. 

Fortunately, securing the right source of business funding can be a lifeline, whether you’re looking to protect your cash flow during a quiet season, purchase new kitchen equipment, or expand your premises to meet growing demand. There’s no one-size-fits-all approach to business funding, though, so the path to success starts with understanding your options.  

Drawing on our 25 years of financial services expertise, this guide demystifies hospitality funding. We cover eight funding options that work especially well for the sector, pinpointing their use cases and pros and cons, to help you secure capital with full confidence.

1. Start Up Loans

A UK Start Up Loan is a government-backed personal loan designed to support individuals starting or growing a new business. Created by the British Business Bank and the Start Up Loans Company, the initiative gives eligible entrepreneurs access to capital ranging from £500 to £25,000, alongside free mentoring and business support to help them get their venture off the ground. 

From artisan bakeries to new pubs and bistros, the Start Up Loan scheme has provided millions of pounds in funding to hospitality businesses since its launch in 2012. In fact, the hospitality industry is consistently one of the top sectors for applicants, making it a reliable source of capital for ambitious entrepreneurs hungry to get started. 

Is this the right option for my hospitality business?

Start-up loans are specifically designed for hospitality ventures that are less than three years old and may have been rejected by traditional lenders. So, if you have a strong business idea but no prior credit score to back up your borrowing, it’s perfect for you. 

If you’ve been trading for longer than this period, or you’re looking for a large amount of capital to fund a large project, you’d be better off exploring more substantial options. 

2. The Growth Guarantee Scheme (GGS)

If you don’t meet the criteria for a Start Up Loan, but want to benefit from government-backed financing, the Growth Guarantee Scheme should be on your radar. Founded in 2024, the GGS is the successor to the Recovery Loan Scheme. It provides accredited lenders with a 70% government guarantee on loans, reducing risks for lenders and making it easier for hospitality businesses to secure the finance they need. 

Unlike smaller loan schemes, the GGS supports loan sizes up to £2 million. This makes it ideal for hospitality businesses looking to fund major projects, from full-scale refurbishments to premises expansions. 

Is this the right option for my hospitality business?

The GGS is targeted towards businesses looking to make long-term investments. This makes it suitable for established hospitality businesses that are looking to fund their next steps, from growing pubs and restaurants to hotels. 

If you’re seeking funding to fix a day-to-day cash flow issue, a short-term solution like a line of credit or bank overdraft will be a better fit. 

3. Business loans

If you don’t meet the criteria for government-backed loans, it might be worth considering traditional business loans. Business loans feature a clear, predictable repayment schedule and can unlock large lump sums of money to help businesses fund major investments, from buying a new point-of-sale system to premises expansion. 

The two main types of business loans are from traditional high-street banks and private lenders. 

• Traditional bank loans: Arguably one of the most common forms of business funding, bank loans offer favourable terms to businesses with strong credit history. While they tend to feature long application processes, their high levels of regulation make them reliable and secure. 
• Private loans: Direct lending boasts flexible criteria and can give you access to funds quickly, making them a solid option for businesses that have been rejected by traditional lenders. However, this flexibility comes at a cost, with private loans incurring higher interest rates and more stringent repayment terms than bank loans. 

Is this the right option for my hospitality business?

The versatility of business loans means that one option is likely to be right for you. However, the type of business loan will depend entirely on your business’s needs and financial position.

For instance, if your hospitality business has already been up and running for a number of years, has a strong credit history, and is seeking substantial funding for a major investment, a traditional bank loan will be the most sensible route. Alternatively, if you need capital quickly and have struggled to obtain funding from a traditional lender, private loans will be the most accessible option. 

Interested in pursuing debt-free forms of funding instead? Learn how to fund your business without a bank loan.

4. Merchant cash advance (MCA)

A merchant cash advance is a type of financing that gives hospitality businesses a lump sum in exchange for a percentage of their future credit or debit card sales. Unlike traditional loans, MCAs don’t have a fixed monthly repayment schedule or a set interest rate, enabling businesses to pay more when sales are strong and less when they are slow. This flexibility makes them ideal for the hospitality industry’s seasonal ups and downs. 

MCAs can also be approved quickly, too, often within a couple of days. This gives them an advantage for businesses needing to cover unexpected costs quickly, from replacing faulty kitchen equipment to covering the costs of inventory or staff wages.

Is this the right option for my hospitality business?

If your hospitality business demonstrates consistent monthly card sales, needs to obtain quick and unsecured capital, and relies heavily on card transactions, an MCA will likely be a good cash flow solution for you — especially in comparison to more stringent options like traditional bank loans.

Merchant cash advances won’t be a good fit for every business, though. Merchants with tight profit margins could struggle with the daily deductions, especially if sales suddenly drop. The loans’ “factor rates” tend to be higher than interest rates from traditional bank loans, too, making the cost of borrowing higher than with other funding options. 

5. Asset finance 

Asset finance provides hospitality businesses with the funds needed to acquire or lease essential assets or equipment. Instead of general capital, the funding solution allows businesses to gain immediate access to the things they need, from delivery vehicles to new refrigeration units, without making a huge upfront payment.

With asset financing, the financing is secured against the asset itself. This means that if a business defaults on its payments, the lender has the right to repossess the asset to recover their funds. While this puts hospitality businesses at risk of losing assets, it can result in a more streamlined application process and lower interest rates, lowering the barrier to entry for funding.

Is this the right option for my hospitality business?

Asset finance is directly targeted at hospitality businesses that need to acquire high-value physical assets to operate or expand. Therefore, if you’re looking to update or replace high-cost equipment without making lofty up-front payments, it’s likely to be the best option for you. 

On the other hand, businesses seeking capital to cover general operational costs, such as rent, staff wages, or utility bills, would be better off pursuing a more conventional funding route and opting for a business loan or bank overdraft instead. 

6. Invoice finance

Waiting on invoices can cause major cash flow problems, especially for hospitality businesses working with corporate clients during the low season. Invoice financing gives these businesses a way to access cash tied up in unpaid invoices from commercial clients, without offering any assets as collateral. 

Invoice financing gives businesses access to cash immediately, allowing them to cover day-to-day expenses like supplier costs and rent. The solution is highly scalable, too, as the amount of available funding grows in line with your business. The more invoices you issue, the more capital you’re able to access.

Is this the right option for my hospitality business?

The funding solution is particularly useful for hospitality businesses that rely heavily on B2B work, including those providing catering for corporate events, hotels accommodating business travellers, and event venues hired out for trade shows or conferences. 

However, due to its reliance on unpaid invoices, this financing method is not ideal for businesses that make the bulk of their income by serving customers, such as cafes, restaurants, and pubs. 

Frustrated with late payments? Learn how the Fair Payment Code can help you vet clients.

7. Line of credit

Also known as revolving credit, a business line of credit provides businesses with a flexible, revolving fund up to a pre-approved limit. Working in a similar way to a business credit card or bank overdraft, once a business has been approved, it can instantly withdraw as much money as needed, up to an agreed-upon limit. 

Lines of credit provide a lifeline to hospitality businesses by providing them with quick cash instalments over quiet periods. The funding solution also helps business owners manage unexpected costs, from plumbing repairs to broken commercial units, without having to go through a lengthy loan application.

Is this the right option for my hospitality business?

Lines of credit are ideal for hospitality businesses looking to manage short-term cash flow gaps, especially if they experience seasonal or unpredictable revenue. This could include hotels which have lower occupancy rates during low seasons, or restaurants and pubs that are quieter during the winter months. 

However, if you already have a stable income or require a big lump sum to scale up or expand your business, traditional loans with lower, fixed-interest rates will be a much more cost-effective form of borrowing. 

8. Business bank overdraft 

Just like a personal overdraft, a business bank overdraft is a short-term arrangement that allows you to temporarily access more money than is available in your account. Acting similarly to a line of credit, the funding option is designed to cover small, unexpected expenses. However, bank overdrafts don’t need to be approved by third-party lenders and aren’t intended for long-term use.

With many hospitality businesses dealing with unpredictable revenue, bank overdrafts can be used as a simple way to bridge cash flow dips. However, they tend to incur higher interest rates than other funding solutions, such as term loans, and can be recalled at any time, making them a riskier form of borrowing.

Is this the right option for my hospitality business?

If you need a temporary financial buffer to cover day-to-day expenses or a quick solution to manage unforeseen, small-scale costs, a business bank overdraft could be a sensible option to consider. 

However, it’s a short-term funding solution, making it unsuitable for hospitality businesses looking to make long-term investments. Businesses need a proven financial track record to be eligible for the credit, too, so restaurants, cafes, or hotels opening their doors for the first time would be better off exploring more accessible options like startup loans.

Secure the right funding with confidence

Navigating the funding landscape is no easy feat, especially for first-time borrowers, as you need to secure the right kind of capital for your hospitality business. 

However, whether you run a restaurant, cafe, or hotel, the right option is out there. It’s simply a matter of seeking the right guidance, understanding the fine print, and looking inward at your business’s specific needs, risk tolerance, and long-term goals. 

By following these steps, it will be easier to confidently select a solution to fuel your business’s growth, giving you the peace of mind to focus on what truly matters.