Retail, hospitality & leisure finance in 2026

If you run a shop, restaurant, pub, cafe or leisure business, you already know 2026 has been one of the hardest years in recent memory. Margins are thin, costs are still rising, and accessing finance has become genuinely difficult for consumer facing businesses in a way it was not five years ago. But difficult does not mean impossible. Many resilient operators are still finding ways to secure the funding they need by understanding how lenders now assess the sector, preparing earlier, and matching the right finance product to the right purpose. This guide explains why the funding environment has shifted, what that means in practice if you are looking to borrow, and tips for securing capital. 

The economic outlook for the retail sector in 2026

The data confirms what many operators have been feeling for some time. The Deloitte Consumer Tracker recorded its largest fall in economic confidence since Q4 2024 in Q1 2026(13), with the index falling 13.5 percentage points, returning to levels last seen four years ago. Retail sales also fell 0.7% year-on-year in April 2026, the sharpest decline since November 2024. There are three forces compounding here:

• Energy costs remain a direct pressure on the sector. Global shipping disruption following military strikes in the Middle East in February 2026 pushed energy prices sharply higher. The Ofgem price cap rises 14% to £1,862 from 1 July 2026, while household energy bills remain 35% above pre-crisis levels. For retail, hospitality and leisure businesses, this matters because energy is both a direct operating cost and a factor that reduces consumer confidence and discretionary spending.

• Wage costs are increasing at the same time as other fixed costs. The National Living Wage rose 4.1% to £12.71 per hour from April 2026, compounded by higher employer National Insurance contributions. For labour intensive sectors such as hospitality, retail and leisure, those two cost lines increased at the same time, putting further pressure on already thin margins.

• Insolvencies show how much pressure the sector is under. In the 12 months to December 2025, 3,353 accommodation and food service businesses entered insolvency, the third highest of any UK sector. There were 1,961 retail insolvencies over the same period, alongside more than 13,000 chain store closures. These figures point to a sector under sustained pressure, with weaker operators exiting and lenders becoming more cautious about those that remain.

For a fuller view of the wider economic context behind these trends, read our June 2026 Economic Outlook.

Why getting funded in consumer facing sectors has become harder

The impact on borrowing is measurable. The retail sector’s share of all business loan applications on Capitalise’s platform has fallen from 4.7% in Q1 2023 to just 0.5% in Q1 2026, even as total applications across all sectors grew by 52% over the same period. This shift is being driven by a number of factors:

• There are fewer viable borrowers. Insolvencies and closures have reduced the number of businesses in a position to apply for funding in the first place.

• Lender appetite has cooled. Rejection rates are rising across the sector. Lenders are not exiting entirely, but they are becoming more selective about which businesses they are prepared to back.

• HMRC arrears are widespread. The December 2025 deadline for pandemic-era debt repayments left many still-trading businesses carrying tax arrears. For most mainstream lenders, that can be enough to stop an application from progressing.

“From where we sit, lender appetite for retail has cooled, even if no one says so out loud. The rejections speak for themselves. Then there's HMRC. Tax arrears are everywhere, and that flag alone is enough for most lenders to walk away. It signals distress, and it puts them behind HMRC in the queue. The result is a sector that struggles to get funding even when it needs it most.” - Nick Richardson, Head of Funding, Capitalise

Consumer facing businesses also face structural barriers that make standard lending products a poor fit. Energy costs are a fixed overhead, which means rising bills erode margins before you have served a single customer, and lenders can see that pressure in your P&L. Seasonal cash flow creates another mismatch, because businesses often need capital ahead of a trading season, while traditional lending timelines do not always accommodate that. Thin or negative margins can also make term loans harder to service, as fixed monthly repayments are difficult to meet when trading is quiet, even if the business is viable over the year as a whole.

There is some reassurance in that funding has not disappeared; the route to it has simply become more specific. Businesses that understand their numbers, explain their funding needs clearly, and approach the right lenders may still be able to access capital. The key is to avoid assuming that a decline from one lender means the whole market is closed.

Which finance products work best for retail, hospitality and leisure businesses?

Not all funding products are suited to the same purpose. The right option depends on whether you are managing day-to-day cash flow, preparing for a busy trading period, replacing equipment, or investing in longer term growth. For retail, hospitality and leisure businesses, the most relevant products are usually those that reflect the sector’s trading patterns and cash flow pressures.

• Merchant cash advance: A merchant cash advance provides upfront funding that is repaid as a percentage of daily card takings. This makes it particularly relevant for restaurants, pubs, cafes, shops and leisure venues with regular card revenue, because repayments rise and fall in line with trading. Rather than committing to a fixed monthly repayment, businesses pay more when sales are strong and less when trade is quieter.

• Revolving credit facility: A revolving credit facility works like a flexible credit line that businesses can draw from when needed and repay as cash flow allows. Interest is usually charged only on the amount used. This can help operators manage gaps between supplier payments, payroll, rent and customer revenue, especially during seasonal troughs or before high cost periods such as Christmas, summer trading peaks or major events.

• Asset finance: Asset finance helps businesses spread the cost of essential equipment or upgrades, such as kitchen equipment, refrigeration, EPOS systems, vehicles, gym equipment or shopfitting. Because the asset being financed often acts as security for the lending, it can be a practical option for businesses that want to invest without using up working capital. This is especially relevant for operators planning refurbishments, replacing ageing equipment or improving operational efficiency.

• Term loans: A term loan provides a lump sum that is repaid over an agreed period, usually with fixed repayments. It can suit businesses with a clear investment plan, such as opening a new site, funding a refurbishment, expanding stock, improving outdoor space or investing in marketing. For retail, hospitality and leisure operators with consistent revenue, Open Banking data can also help lenders get a fuller view of trading performance beyond the credit score alone.

• Commercial mortgage: A commercial mortgage is a longer-term secured loan used to purchase business premises. It may be relevant for established operators looking to buy rather than continue renting, particularly where rising commercial rents are putting pressure on margins. Owning the premises can give businesses more control over long-term occupancy costs and future investment decisions.

Managing seasonal cash flow

For many retail businesses, Q4 is critical because of major trading moments such as Black Friday and Christmas. One of the most important things to do is ensure you have enough headroom to purchase stock well in advance, but that can be difficult if sales are slower in Q3. Running out of cash in October is a common problem for many operators, and the same issue applies to hospitality and leisure businesses that need to invest in stock, staffing, marketing, outdoor space or equipment ahead of the summer months.

The fundamental mismatch is that businesses need capital before the season, while traditional lenders often want to see performance before they lend. Merchant cash advances and revolving credit facilities are generally the most effective tools for bridging this gap. If a significant portion of your annual revenue is concentrated in a short window, your funding plan needs to reflect that timing rather than rely on finance becoming available once the season is already underway. This is one of the areas where planning ahead can make the biggest difference. A business that knows when cash pressure is likely to appear can arrange funding before the pressure becomes urgent. That can mean buying stock at the right time, taking advantage of peak demand, and entering the season with more confidence.

How to put together a stronger application

The businesses successfully securing funding right now share one characteristic: they arrive prepared. Lenders who are cautious about the sector are looking for clear evidence that you understand your numbers, have a credible plan, and are in control of any risks. A stronger application does not need to be overcomplicated, but it does need to show that you have thought carefully about affordability, cash flow and the purpose of the funding. The good news is that many of the steps that strengthen an application are within your control. Even where the wider market is challenging, better preparation can improve how your business is understood by lenders.

• Build a cash flow forecast and stress test it. Test your assumptions around costs, seasonality and demand before you apply. If the numbers only work in the best case scenario, that is useful to know before you commit to borrowing. Applying sensitivity analysis does not have to be complicated; it can be as simple as asking what happens if revenue is 15% lower than expected.

• Check your business credit score. Before approaching lenders, it is worth understanding how your business looks from a credit perspective. Your credit score can influence the lenders available to you, the products you are eligible for and the terms you may be offered. Checking it early gives you time to identify any issues, correct inaccuracies and approach the market with a clearer view of your funding options.

• Use Open Banking data. For businesses without a perfect credit history, Open Banking gives lenders a fuller and more accurate picture of financial performance. It is one of the most underused tools available to smaller businesses, and it can meaningfully improve your chances of receiving an offer.

• Deal with HMRC arrears proactively. Tax debt is one of the most common reasons applications are rejected right now. Agreeing a Time to Pay arrangement with HMRC before you approach a lender demonstrates that you are taking control of the issue and helps address one of the biggest red flags in your profile.

• Compare across the market, not just your bank. The businesses that get the best outcomes are comparing across multiple lenders. Capitalise connects UK SMEs to over 130 lenders, including specialists who focus on consumer facing businesses and can lend where high-street banks will not.

What this means for your consumer facing business

If you have been turned down for finance, or you are not sure where to start, the most useful first step is to understand exactly where your business stands. That means looking at your credit position, cash flow, any arrears and the type of funding that best matches your situation.

A challenging market can make borrowing feel discouraging, but it also makes preparation more valuable. Being turned down by one lender does not mean your business is out of options, and it does not mean every lender will view your application in the same way. With a clear picture of your numbers and access to a wider range of lenders, you can approach the market more confidently. You can check your business credit score with Capitalise to understand your current position. When you apply for funding, you can also speak with a funding specialist to get dedicated, personal support and compare options across the market.