Get Credit risk considerations, including advantages, risks, funding needs, and more, for the three most-researched hospitality industries on RMA’s eStatement Studies. Industries are Hotels (except Casino Hotels) and Motels, Full-Service Restaurants, and Limited-Service Restaurants (Fast Food).

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A QUICK GUIDE TO
CREDIT CONSIDERATIONS IN
HOSPITALITY LENDING
Credit risk considerations for the 3 most-
researched hospitality industries on RMA’s
eStatement Studies

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HOSPITALITY AND FOOD
• Hotels (except Casino Hotels) and
Motels
1
• Full-Service Restaurants2
• Limited-Service Restaurants (Fast Food)6

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1.
HOTELS
(EXCEPT CASINO HOTELS)
AND MOTELS

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CREDIT CONSIDERATIONS FOR
HOTELS AND MOTELS: ADVANTAGES
Improved demand-
side drivers and a spike in
leisure and business
travel.
Improved consumer
confidence in the economy
has increased travel and
tourism.
This demand enhances
opportunities for this
sector to grow both
domestically and
internationally.
With limited supply and
stronger demand, room
rates are increasing,
driving up revenue.
Hotel/Motel

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CREDIT CONSIDERATIONS FOR
HOTELS AND MOTELS: RISKS
Higher costs and expenses related
to renovation erode profits.
The ubiquitous daily
room rate change
indicates income is
highly volatile and
affects cash flow and
adds pressure to
operating margins.
Labor costs, including
union versus non-union
employees, and
healthcare costs
influence profitability in
this sector.
As demand increases, it is
likely that there will be a
new supply of rooms
added to inventory, which
will affect occupancy rates
in high tourist areas.
For those exploring growth
opportunities overseas,
lingering uncertainty, such
as macroeconomic issues
in Europe and political
turmoil in South America,
is a concern.
$

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HOTELS AND MOTELS:
FUNDING NEEDS
Typically need
funds for:
Purchasing a property.
Remodeling.
New construction.
Debt consolidation.
Working capital for ongoing financing
needs.

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CREDIT RISK ISSUES TO CONSIDER FOR
HOTELS AND MOTELS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• The consumer confidence index data that
influences profitability in this sector.
• The critical staffing and employment factors
that indicate a good business model.
• How the adoption of new technologies can
show that a hotel or motel is poised for
continued growth in its market.
• What might indicate the threat of rate
compression in the local sector?
• Which type of hotels and motels are poised
for the strongest expansion?

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2.
FULL SERVICE
RESTAURANTS

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CREDIT CONSIDERATIONS FOR
FULL-SERVICE RESTAURANTS: ADVANTAGES
1Sales have increased recently.
3
Dining out is one of America’s most
popular recreational activities and is likely
to increase.
Economic forecasts show that growth
will continue thanks to a strengthening
economy.
2

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CREDIT CONSIDERATIONS FOR FULL-SERVICE
RESTAURANTS: ADVANTAGES (CONT.)
4In surveys, almost half of all consumers
say they’d like to eat out more often.
6
There is renewed interest in upscale dining by
younger consumers and business travelers.
For Millennials, restaurants are important
social hubs as well as places to eat.
Data indicate that as the economy
strengthens, consumer demand for the
convenience of eating out will grow.
5

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CREDIT CONSIDERATIONS FOR FULL-SERVICE
RESTAURANTS: ADVANTAGES (CONT.)
7
There’s been an increase in
international travel to the United States
which is expected to continue.
Full-service restaurants, particularly
in tourist areas, should see increased
business generated by those
travelers.
8

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CREDIT CONSIDERATIONS FOR
FULL-SERVICE RESTAURANTS: RISKS
Sales are
increasing, but
are modest
compared to
pre-recession
levels.
Some analysts
say
consumers are
still in a
“recession
mindset.” They
are cautious
and continue
to look for
ways to
reduce their
spending,
including
eating out.
Businesses
are reducing
expenses by
cutting down
on business
lunches.
The industry
faces a
challenge from
rising
wholesale food
costs—there
have been
record-
shattering
prices in the
commodities
markets.

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CREDIT CONSIDERATIONS FOR
FULL-SERVICE RESTAURANTS: RISKS (CONT.)
Restaurants see
intensifying
competition for
employees. As
the economy
continues to
improve, the
industry will
likely see a
higher
employee
turnover rate,
which could
drive up labor
costs.
Consumers
are focusing
more on
healthy
eating, food
quality, and
local sources
of food. They
are more
conscious
about weight
and obesity
issues.
The Healthy
Eating Index—
the USDA’s
measurement
of the quality
of Americans’
food choices—
is expected to
grow in
coming years.
These trends
pose potential
threats to full-
service
restaurants
that have not
adequately
adapted their
menus to the
farm-to-table
movement or
the Healthy
Eating Index.

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FULL-SERVICE RESTAURANTS:
FUNDING NEEDS
Typically need
funds for:
Equipment.
New construction or renovation of
existing building.
Rent.
Promotion.
Employee wages.
Licensing.
Working capital.

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CREDIT RISK ISSUES TO CONSIDER FOR
FULL-SERVICE RESTAURANTS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• How the trends in “casualization” of restaurants and
the Healthy Eating Index can impact full-service
restaurants.
• How consumer-confidence level changes influence
a household’s eating out expenditures.
• How government policies and health department
regulations affect full-service restaurant operating
costs.
• How employment trends impact restaurant
expenses.

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3.
LIMITED SERVICE RESTAURANTS
FAST FOOD OPERATORS

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CREDIT CONSIDERATIONS FOR FAST FOOD
RESTAURANT OPERATORS: ADVANTAGES
1
Compared to other operators in the hospitality
sector, the fast food restaurant industry has
fared well over the last several years due to
the convenience they offer consumers.
3
The quickening pace of society means there will
continue to be an almost round-the-clock
demand for fast food.
As the economy recovers
and consumer spending increases, revenue
for these restaurants is expected to grow.
2

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CREDIT CONSIDERATIONS FOR FAST FOOD
RESTAURANT OPERATORS: RISKS
Strong competition
within the fast food
sector forces
operators to keep
prices very low to
attract consumers,
minimizing profits.
As consumer eating
habits continue to
evolve, fast food
restaurants must
alter their menus to
meet demand. This
often involves
working with more
expensive suppliers
for higher-quality
ingredients.
To offset these
potential threats to
revenue, fast food
restaurant operators
must turn to internal
cost controls and
explore the benefits
of franchising.

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FAST FOOD RESTAURANT OPERATORS:
FUNDING NEEDS
Typically need
funds for:
Establishing a new location or expanding
a current location.
Food inventory and working capital.
Marketing capital.
Replacing or rehabilitating outdated
kitchen equipment, fixtures, and furniture.
Atmosphere/décor improvements to attract
clients.
Renovating/training to comply with health
department regulations.

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CREDIT RISK ISSUES TO CONSIDER FOR
FAST FOOD RESTAURANT OPERATORS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• How consumer preferences and habits affect
demand.
• How menu expansion impacts long-term profitability.
• How competition within the sector affects profit.
• The most important criteria to draw convenience-
minded clientele.
• How increased consumer spending will positively
affect certain types of fast food restaurants.
• Which internal controls can reduce waste and
improve profit.
• Insight into the benefits of franchising.

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ABOUT eSTATEMENT STUDIESSM
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involved in analyzing financial statements. It features two
data set types:
• Financial Ratio Benchmarks.
• Industry Default Probabilities and Cash Flow.
eStatement Studies gives you the power to make more
informed financial decisions.
For more information, contact
eStatementStudies@rmahq.org

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