THE EFFECT OF THE FINANCIAL CRISIS AND BASEL II ON SMALL AND MEDIUM SIZED ENTERPRISES IN THE HOSPITALITY INDUSTRY

The key term “financial crisis” reaches about 50 million hits when it is typed into Google. The news media had been constantly broadcasting current developments since the beginning of the disaster. Although originated in the United States, the financial crisis turned into a global problem with disastrous consequences. Despite numerous actions to stabilize the markets, Germany is nearing its peak of registered insolvencies with an assumed 40.000 new bankruptcies in 2010, with the number of illiquid, nonregistered companies even being higher (Die Welt, 2009). Debts and bankruptcies bring layoffs, which result in a lower economic spending power since consumers have lesser to no income, hence, cannot re‐inflate the economy through investments, which can eventually generate more bankruptcies. Even companies that are not affected by the economic downturn were confronted with the pressure to lower their business expenses as a precaution. Also hotels have been facing a difficult time, since fewer people are able to travel with less money available. Canceled meetings or a need to stick to a tighter expense plan reduce the revenue of hotels almost immediately (Ryan, 2009). To finance temporary losses or to start reviving a business through sanitation or expansion, money is essential.. Financing conditions are not only a huge challenge for the management but also for creditors. Their concern is a lucrative investment and a guarantee of repayment of the credit in a timely matter. Hence, both perspectives are analyzed throughout this work. Therefore, this paper examines the financial crisis’ and Basel II’s impacts on operation and financing issues on Small and Medium Sized Hotels since 2007. This work discusses warning signs of the implementation of Basel II and III regulations, as well as the development of the financial crisis with actions that are taken to mitigate impacts on the financial market and the economy. By the use of an online survey with a total of 68 Small and Medium Sized Hotels in Franconia, important individual experiences and general trends on these topics are analyzed. Although most hotels from the survey were not as badly affected as the average of hotels worldwide and in some cases even profited from the financial crisis, they still have to overcome major obstacles in banking negotiations when financing their business with new credits. Small and Medium Sized Hotels’ possibilities are therefore limited which places them in a disadvantage in contrast to usually bigger hotel chains that are composed of several securities for new credits unlike privately run, individual small enterprises. Although Basel II had the intention to create a fairer distinction process between enterprises it oversaw several mistakes such as securitizations that are now to be changed. Since adjustments now need to be made within a short time, impacts cannot be fully analyzed beforehand. This provides another threat for the financial market as well as the whole economy in case of severe consequences that had been missing in primary evaluations. The accuracy of answered questions is different for some hotels which makes the survey’s outcome volatile in reliance. Nevertheless, a good overview is given that provides suggestions for more detailed research, also for further in‐depth interviews to ensure consistency and credibility over a longer period of time.