Running a pub can certainly have its ups and downs. It didn’t take the COVID pandemic to highlight this to the 50,000 pubs up and down the UK. The notion of an annual ‘rollercoaster’ might be especially true for those establishments that regularly experience seasonal variations, such as a Christmas rush followed by a lull in January, or those pubs in tourist areas where the summer might be their boom time.
Even prior to COVID, data from the Campaign for Real Ale showed that 18 pubs across the nation were closing for good every week; and licence holders at smaller, independent pubs were all too aware of the effects of competition from “chain” pubs and from cheap supermarket drinks.
The good news is that there are a number of financing options available to help you through the tough times. Hopefully, you will be able to get a loan, regardless of whether you are a traditional local boozer, a craft ale micropub, or an upmarket gastropub.
This is perhaps one of the most common and best-understood forms of business finance.
Depending on your individual circumstances, you might be able to borrow anything between £1,000 and as much as £500,000. You would then repay the amount borrowed, plus interest, in monthly installments over the term of the loan, which could be anything between one and five years.
Although these loans are not secured by property, you may be asked to provide a personal guarantee.
This form of finance can be arranged very swiftly, and the funds might be with you in as little as 24 hours from the time of application.
Again, this is a product that might allow you to borrow anything between a few thousand and half a million pounds. However, instead of repaying the amount borrowed via fixed monthly repayments, you repay the capital and interest via your customers’ card payments.
Every time a customer uses a debit or credit card, the lender takes a small percentage of each transaction value to go towards repaying the loan, while you retain the rest of the transaction value.
An increasing number of pub customers now pay via card, even when they’re just buying one drink, so this could be an ideal solution. One of the major advantages of this form of finance is that the amount you repay will be proportionate to the amount of trade you enjoy in any given period.
Secured loans, or mortgages, again allow you to borrow a large amount and to repay the capital and interest in monthly installments over an extended term, which in this case might be 15 to 25 years or so.
The main difference is, of course, that the loan is secured on property or another business asset, and that the lender can re-possess this asset if you fail to maintain repayments.
If you are lucky, the lender will grant you an amount close to the value of the asset, although a loan for 60-70% of the asset’s value might be more common.
It’s fairly well-known how these work – the bank allows you to have a negative balance on your account for a period of time, and then when business improves, you pay off this amount, plus interest, and bring your balance back into the black.
Credit cards
Again, this is a well-understood form of borrowing, where you make business purchases using the card and repay these amounts at a later date.
The various types of asset finance loans are likely to be available to pubs, just as they are also offered to other business sectors. Common forms of asset finance include:
- Hire purchase – where you purchase an asset and pay for it not as one lump sum, but in installments over the term of the agreement
- Asset re-finance – where you raise money against assets you already own, and repay the amount borrowed, plus interest, over an agreed term
What might I want to borrow for?
You can use the funds borrowed for any business purpose, including:
- Refurbishments of front-of-house areas or kitchens
- The costs of taking on and training new staff
- Developing new menus
- Repairs
- Stock purchases
- Marketing campaigns
What documentation might I need to provide?
The exact level of documentation the lender will want when considering your application depends on factors such as the type of the loan and the amount being borrowed. A commercial mortgage might be the type of loan that will be most rigorously assessed, but the documentation you should be prepared to provide includes:
- Financial statements for the last 2-3 years, including profit and loss account, balance sheet, and cash flow statement
- A business plan for any proposed expansion or new venture
- Details of your personal experience in the pub trade
The lender is also likely to access your credit report, and if you have an impaired credit profile, you could have to pay a higher interest rate, or you might see your application declined altogether.
Get in touch with the team at Funding Bay to find out more!
