By David Wallace, of the Cumberland Building Society

Last updated 09:02, Monday, 29 September 2008

As the tourist season comes to an end traditionally many guesthouse and hotel owners place their properties on the market.

• Vist the Cumberland Building Society website

Open for business: But in order to secure a loan, a new buyer must show skill and aptitude in running a guest house

Over the winter months purchasers look into acquiring these businesses, ready to be up and running for the beginning of the next tourist season.

This causes an increase in the number of people enquiring to secure commercial finance to assist with these purchases.

Despite the credit crunch headlines, the Cumberland Building Society has continued to see an increase in enquiries from potential purchasers looking to buy a business in the hospitality sector.

However, what effect will the credit crunch have on those looking to secure a commercial mortgage?

The number of lenders providing commercial mortgages has decreased, with some businesses pulling out of the market altogether, especially those offering loans with a high loan to value ratio (LTV).

The remaining lenders will now typically provide loans of up to 70 per cent of the market value of the business.

In addition to an increased deposit, buyers will still need to budget for set-up costs including the lenders’ arrangement fee, valuation and solicitor’s fees, including stamp duty.

Additional sums may need to be set aside to cover any refurbishment or advertising costs, as well as working capital, especially if they buy the business through the winter season.

It is important for borrowers to clearly demonstrate to the lender that they have the necessary skills and experience to run a guesthouse or hotel.

Some lenders will only lend to those who have had previous experience in the hospitality industry.

For instance, a business incorporating a restaurant, will result in the lender wanting to ensure that applicants have the necessary catering background and experience.

However, over the years the Cumberland Building Society has assisted purchasers from a variety of backgrounds to buy a hospitality business.

It is up to the purchasers to show they have the necessary business skills and personality to make a success of the venture.

Lenders look for a fully detailed business plan, to enable them to consider the application and to help demonstrate their understanding and viability of the business.

In summary, those looking to buy a business in the hospitality industry and requiring finance will still be able to secure mortgage finance.

However, a larger deposit may be called for than would have been required a year ago, and it must be clearly demonstrated that they have the necessary skills to be successful and to service the lender’s loan.

To speak to one of the society’s business lending managers, call 0845 601 8396.

• David Wallace is a business manager at Cumberland Building Society. Visit the website at www.cumberland.co.uk
• Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.