Property Finance Success Story: Buying a bar during lockdownPublished on 23rd September 2020 2020-09-23T14:28:32+00:00 - Last update on 24th September 2020 2020-09-24T10:58:16+00:00
Traditional pubs may have less appeal than they once had, but bars have grown in popularity. They thrive on individuality - and with the necessary funding, they can still be a lucrative business. At Rangewell, we can help you secure the necessary funding to acquire the property you need.
TL:DR - When a business owner secured funding for his new hospitality venture, things looked good. Then Covid hit and the lender withdrew the offer. The client recognised the opportunity and turned to Rangewell to help with finance. We were able to secure a Bridging Loan at just 0.95% per month which enabled the client to go ahead with his business plans and refinance to a product with a lower rate in 12 months' time.
A successful bar needs the right combination of location, ambience, decor, drinks and service for its market. It needs to be on-trend to get customers in.
But a tired bar can also mean potential for you. A bar in the right location which has fallen out of favour could easily be refreshed and turned back into a profitable business by a new owner with the right combination of energy, industry awareness and understanding of the market.
At Rangwell we recently helped an experienced bar manager to buy premises as the basis of a new business.
Taking advantage of opportunities
He had seen a property in his native Cardiff that he believed would be perfectly placed to take advantage of the regeneration of the area.
It was a bar and restaurant with a flat upstairs, close to some major new housing developments. He negotiated with the seller and was able to agree on a price of £400,000. A loan with a 60% LTV would leave him with enough spare cash to renovate the tired interior and open for business.
However, this was at the beginning of the Covid crisis and, not only were all bars and restaurants locked down, but there was also no date for them being allowed to reopen. Although lenders were initially positive, most withdrew offers as the crisis hit.
Our client had been able to secure an offer of 60% LTV with a Commercial Mortgage.
How Commercial Mortgages work
Commercial Mortgages can be used to buy virtually any business premises or even an existing business. They work much like residential mortgages, although they are arranged on an individual basis. A lending manager will look at each application and will set the rate according to the risk. You may need a detailed business plan - the better your business proposition, the more likely you are to get a positive decision and the better the rates you are likely to be offered.
It's also worth noting that all commercial property finance is arranged on an individual basis.
A problem due to lockdown
However, although he was given the offer he needed, the lender withdrew the offer as the depth of the Covid crisis became clear.
“I was buying property to set up a business that was not allowed to open. I could see why the bank suddenly got cold feet about the deal.”
The position had actually been made worse by the fact that the property was being sold for substantially less than the initial asking price. Buying undervalue property can mean securing a bargain, but lenders may think that it will be difficult to sell on and, therefore, presents a risk to them if they need to call it in if repayments are not kept up.
But despite their bank being nervous, our client was determined to press ahead. He believed that the lockdown would be short-lived, and that he could open his new bar as soon as it was lifted - and derive some income by letting out the flat above it.
“I had hoped that an income from the flat would make the banks see things more favourably - but the Covid crisis had made them refuse to touch anything to do with the hospitality trade.”
He came to us at Rangewell for help.
How we secured the funding he needed
Our client had already talked to some of the key lenders for the licensed trade, and it looked as though a Commercial Mortgage would be difficult to secure at a reasonable rate.
Commercial Mortgages are always the subject of individual assessments and although the value of the property is one of the factors considered, the performance of the business is also important. With the business not in operation - and not allowed to open - the figures that he provided were only projections.
Lenders were not willing to take a chance of providing the funding required. Lending for the licensed trade has become difficult in recent years and the Covid crisis simply made things worse.
However, we believed we could find a solution by finding a lender who could offer funding with a Bridging Loan.
With a Bridging Loan, the security is provided by the property - not the credit record of the borrower, or by the prospects of the business that may be run from it. They are versatile, but have a high cost, reflecting the risk to the lender. They are, therefore, intended to be repaid quickly, either by the sale of the property or by another finance product designed for the long-term, such as a mortgage.
We knew that many bridging funders had shut up shop altogether until the post-Covid future became more clear - but we did know of one specialist company that might be interested and still prepared to lend.
We approached them with full details of the bar and the business our client was planning to run from it - and full details of the upturn in the local area. Bridging lenders are able to make rapid decisions and funding was agreed within hours, with the funds released in a matter of days.
Costs for Bridging Loans can be high. Rates of 1.0% per month are not uncommon, and there would be arrangement and exit fees which will increase the costs.
However, these fees and the growing interest could be rolled up into the loan and repaid with a new type of funding, such as a Commercial Mortgage, once the business had been running for a season and proved its profitability.
Lending for property development can include a roll-up of interest and associated costs into the loan, which would be paid off once the development is sold.
The deal we arranged
We were able to negotiate funding at 0.95% per month and to arrange attractive terms by providing a carefully structured deal. We were able to persuade the lender to provide funding on the basis of the market value of the property, not the purchase price.
With the property valued at £500,000, the lender would provide £350,000, allowing our client to have cash in reserve to equip his site.
All interest for the 8-month term would be calculated on day 1 of the loan and repaid when the refinance was arranged.
“The funding was exactly what I needed and, despite the lockdown, we were able to freshen up the bar and get ready for opening. As soon as we were allowed, we opened for business.
As I had hoped, there were plenty of local people looking for a bar which could offer food, and even if the future is not as bright as it could be thanks to the ongoing Covid problems, I’m confident that the books will look good enough to switch to a standard Commercial Mortgage early next year.”
Why we were able to help
Finding the right lender for your property can be crucial to your success and your business’s profitability. That’s why it is important to speak to the Rangewell team without delay. Our team is made up of industry specialists, and our property team includes some of the leading specialists in the country.
What’s more, at Rangewell, we have close relationships with all the lenders in the UK market. We know which are most suitable for a particular type of property - and those that can offer the most cost-effective solution for an individual need.
We will work with you to discuss your plans and we can then call on our network of property lenders, which includes virtually every name in the UK market to get the funds you need at the most competitive rate.
If you have a property project in need of funding, just call us and one of our experts will be able to discuss the options, and work out the most cost-effective ways to provide the loan you want - whatever the challenge your business plans present. - and in most cases, our services are absolutely free.
Property deals cost less with help from Rangewell
- Individual arrangements tailored to your circumstances
- Adverse Credit – no problem
- Repayments geared to your revenue stream - including interest roll-up
- Understanding the funding challenges for your sector
- Personal service
Talk to Rangewell – the business finance experts
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