If you’re deciding to achieve your ambition and buy a pub or bar, you’re likely to want to take out some form of finance to cover your licence, maintenance, and other fixtures.
Ultimately when you decide to purchase a bar, it’s key to remember that it’s more than just the building as there is a business behind it too.
Pub finance can cover several different options, namely a leasehold or a freehold pub mortgage. In this article, we will break down the different funding options available for pub owners, who can qualify, and how you can apply.
Types of Financing Options for a Pub
Buying a Leasehold – Unsecured Loan
Typically, you can buy a leasehold from a pub chain operator which means that you take on the right to occupy and run the establishment for a set period of time. This is typically for at least ten years. However, this can be expensive with costs varying drastically as it starts from as low as £30,000.
For this reason, some people borrow a portion of this cost through the means of an unsecured loan. An unsecured loan is backed up by a borrower’s creditworthiness as opposed to securing it against collateral such as assets.
Pros:
- Collateral isn’t required to secure the loan.
- Involves a shorter application process.
- You do not risk losing your assets.
- A wider range of providers and services.
Cons:
- Have higher interest rates.
- There is an increased risk for the lender so they usually only offer small amounts without security.
- You will need a good credit score.
- Harder to qualify for the loan.
Buying Freehold – Secured Loan
You can also buy a pub or bar outright, where you can enjoy the profitability to a fuller extent. This is because you’ll have full control over your products and the business.
However, it is more costly as the purchase may cost 2 to 3 times its turnover. You also have to consider factors such as its location and future potential.
One way of funding this hefty cost is through a secured loan which is backed up by your collateral, should you not be able to repay the loan.
Pros:
- They usually have lower interest rates.
- Typically have a higher borrowing capacity.
- Have longer repayment times.
Cons:
- Requires securing the loan against assets.
- Your business usually needs at least two years of history.
- If you are not able to pay your loan, you risk losing your assets.
Buying Freehold – Commercial Mortgage
Commercial mortgages are a popular option when it comes to buying pubs outright. Much like with a residential mortgage, commercial mortgages are secured against the property you are intending to buy.
During this process, you are going to need to consider the arrangement, valuation, and legal fees associated with buying. Understandably, interest rates will vary considerably but are generally between 3% and 7% per annum.
Pros:
- You will own the premises, which may increase in value.
- You will have complete control over the products.
- Can have the opportunity to hire out the venue.
- Usually have low-interest rates.
Cons:
- High start-up costs.
- You are responsible for maintenance and repairs.
- Many commercial mortgage lenders require a large deposit.
- Best suited to those who are experienced in owning and running pubs or bars.
Merchant Cash Advance
Merchant Cash Advances are a popular way to fund pubs by allowing businesses to access cash in a flexible manner. This works by the lender providing the business with a cash advance which is repaid through a portion of customers’ card payments.
The amount you are repaying can vary drastically as typically, you will pay back anywhere between 5% and 25% of your daily transactions.
Pros:
- No fixed monthly repayments, which may be useful if you have a slow month.
- You can qualify even if you have poor credit.
- You do not have to secure it against any collateral.
- It is flexible and scalable.
Cons:
- It is limited by your cash flow.
- Can be very expensive.
- Is often a temporary solution.
How Can Financing Help Your Pub Business
There are many potential finance options available to establishment owners to suit their specific needs. A business loan can help you be able to purchase or run a pub or grow the business through new furniture, staff training, or expansions. There are many reasons why you may want to seek out finance.
Finance can help create stability and provide solutions, however, it’s always important to remember the drawbacks.
Does My Pub Business Qualify for Financing?
Different finance providers will have different requirements and criteria to meet, so you should be realistic about your situation and experience when applying.
Some solutions may want a good credit history or several years in business. Typical criteria for finance includes the following:
- Your public house or bar is registered and trading in the United Kingdom.
- You have a minimum monthly turnover of £5,000
- The owner is at least 18 years old.
- You have been trading for at least 6 months.
What You Will Need to Apply for Pub Financing
The documents you’ll need to provide for finance will vary depending on what type of finance you are applying for. However, you can usually expect to provide at least some of the following:
- Your experience with running pubs (If you’ve never run a pub before, you can still apply with details on your industry experience.)
- A business plan detailing how you would run your public house and how you aim to make a profit.
- Your credit history
- Any company accounts if possible so that lenders can determine whether your proposition is feasible.
- Any type of collateral, guarantees, or security you may be able to offer.
How to Apply for Pub Financing
When applying for finance, there are various lenders you can consider including high street banks, specialist commercial lenders, and challenger banks. It is important that you explore your options and find the lender who is best suited for your pub funding.
You may also find it helpful to gather quotes to determine which is the one you can most realistically afford.
Once you have your business documents ready and prepared, you then need to make your application. Most lenders allow you to apply online by filling in the required information.
The application process can take as little as a month but you can usually expect it to take up to three months.
Can I Get Funding for My Pub If I Have a Bad Credit Rating?
You can access business finance with a bad credit rating, but you may struggle to be approved for certain types of finance such as unsecured loans.
With a bad credit score, lenders may offer less money as a result of the increased risk. However, you may be able to access funding through other methods such as credit brokers.
If you can access a loan, it is likely to come with a shorter repayment period, a high-interest rate, and a smaller amount of money being lent.
Who Offers Pub Financing
As touched on, there are various types of lenders who can offer finance for pubs, including:
- High streets banks are reputable and typically offer the lowest interest rates. Loans are normally handled by specialist lenders.
- Specialist commercial lenders can lend against pubs, usually taking on high-risk candidates such as those with a poor credit history. However, they tend to charge higher interest rates.
- Challenger banks do not often lend against pubs, but they do have a more flexible set of requirements and payment leniency. However, the interest rates are usually higher as there is more risk taken.
Which Financing Option Is Right for Your Pub
Finding funding for pubs can be a challenge as it is a broad and specialist market with lots of possible options. It is important that you thoroughly research the options, assess your situation, and examine the lender’s criteria so you make good use of time.
Final Thoughts
We’ve touched on just some of the most popular commercial finance options available to pubs and bars, but there are more to consider. Opening any kind of business can be an overwhelming investment, so it’s important that you make sure you are finding the most suitable solution for you.
We hope that this guide has been useful in your search.
FAQs
What is the difference between secured and unsecured business loans?
Secured business loans use assets and personal guarantees as security for the loan in the event that you can’t repay it. Unsecured loans do not use capital as security and usually rely on your creditworthiness.
Do I need to provide security to obtain a pub mortgage?
This will depend on the lender and individual factors. If you have a very good credit score, your lender may not require security. However, if your score is average, they may want security to reduce the risk and seal the deal.
How long will it take to receive a pub loan?
This will depend on the type of finance and your lender. When you receive the loan can vary drastically, from one day to months.
Do I have to pay back a government grant?
A grant is a sum of money that is given to your business from the government which you do not have to repay.