Finance for your pub

The great British pub is going through a major period of change. Health-conscious drinkers are drinking less beer, and many now prefer newer style bars. Tobacco sales - and the profits they generated - are now a thing of the past.

A pub in a good location, serving good ale and good food can still be a very rewarding business - especially with more relaxed licensing laws that allow longer hours of trading.  

Of course, getting the right kind of finance is essential to secure that success. To succeed, a pub may need an interior remodelled to be fit for the 21st century, and a kitchen re-equipped to cook gastropub to provide food. It may need WiFi and big-screen TVs instead of a dartboard. It may also need a wine cellar rather than a beer store. But it will certainly need a professional business plan, and a focus on a clear customer demographic.  

It could all mean a major investment requiring external finance. But there are many forms of business finance and not all are suitable for your pub.

Funding options for your pub

The first step in securing the funding you need is to understand the right type of funding for each particular need.

They include:

• Buying a pub 
• Funding for property
• Business Loans
• Asset Finance - Leasing and Hire Purchase
• Cashflow Funding
• Tax Funding

Buying a Pub

Buying a pub, like any other type of business purchase, will mean costs that reflect the turnover that is currently being realised - and the level of profitability that it supports may mean that margins are tight.

However, many other factors, such as the location of the business and its potential for the future, may also be taken into account. 

There are also two main types of pub business. The most common may be leasehold, where you simply buy the right to operate the business and occupy it as a tenant. The other is freehold, where you buy the property as well as the business that runs from it. Naturally, because it involves buying a property, buying a pub freehold or outright is the more expensive option.

Buying leasehold

You buy a leasehold from an outgoing leaseholder or from a brewery, or now, more commonly, a pub chain operator if it’s a new lease. You can sell on the lease, but the pubco or brewery must agree before the sale can go ahead. Costs can range from around £30,000 for a small country leasehold pub to £300,000 or more for a large pub in London. It may be possible to borrow part of this cost with an Unsecured Loan.

Unsecured Loans can be arranged over 1 - 60 months, and have interest rates around 4-5% above base rate - although it is essential to get expert help to get the most competitive rate for your borrowing needs. The lender will also expect you to provide a personal guarantee - from you and your partners and co-directors.

Buying freehold

Buying a pub outright will ensure that you enjoy the profits, as there is no pubco or brewery. However, costs can be high. A freehold pub usually costs between two and three times more than its turnover.

This can be driven still higher if the pub premises might be suitable for conversion into homes. A busy, large pub in a good location could, therefore, be offered for £1 million or more. A Secured Loan or Commercial Mortgage could be the most cost-effective way to provide funding.

A Secured Loan can provide very high levels of funding, but the lender will require something as security in case you cannot pay the loan back. If you don’t repay, the lender will have the right to take the asset you have used as security. Loans are usually 50–70% of overall asset value.

A Commercial Mortgage is a loan secured on the property you are buying. There will be valuation, arrangement and legal fees. The actual rate you pay will be agreed by the lender - so getting professional help can mean substantial savings. Commercial Mortgages can be arranged from as little as 2% above bank rate - although many lenders will be cautious of the pub sector and will set a higher figure.

Arranging a loan in principle beforehand may be a powerful advantage when negotiating the eventual price.

However in most cases, a pub will require refurbishment work when it changes hands - this can be a condition of the lease or a business imperative. A variety of lending solutions can provide the necessary cash, including Unsecured Loans.

Funding for property

If you want to own your pub rather than run it as a manager or leaseholder, you will need to budget for the cost of buying the property as well as the business - but, remember, property can be a major asset as well as a major expense. At Rangewell, we can help you find funding on the scale you need for your property plans. 

Commercial Mortgages can be used to buy business premises or even an existing business. 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 better the rates you are likely to be offered.

However, rates may not be attractive for buying property within the pub sector - although, at Rangewell, we will work to find the lender who is prepared to offer the most competitive rate.

Bridging Finance is used to provide short-term access to large sums of money. It may be useful if you need to move fast to secure a pub sale and need to sell your existing property. Auction Finance is a special type of Bridging Finance used to provide fast access to funds for buying a property at auction, until a renovation is completed or waiting for a mortgage to be approved. Pubs frequently change hands at auctions and may provide you with an opportunity to acquire a bargain.

However, it's worth remembering that Commercial Property Finance is always arranged on an individual basis.

Business Loans

Loans are the best-known forms of business finance and can offer solutions for a number of purposes provide answers to many different needs that you may face. There are two main types of loans.

Secured Loans are often used to borrow large sums of money, upwards of £250,000. They are ‘secured’ because the lender will require security in case you cannot pay the loan back. This could be your home, or your pub premises if you are the freeholder.

You can have longer to repay than other types of loan and enjoy lower interest rates, meaning monthly repayments can be easier to fit in with your cashflow.

A Secured Loan could provide for major remodelling and extension of your premises.

Unsecured Loans can be suitable for smaller sums, from £5000 upwards - although some lenders will not let you borrow more than one month’s turnover with an Unsecured Loan. Some lenders can arrange unsecured lending within one working day, and although you will not need to put forward any assets as security against the loan, you will need to provide a personal guarantee.

Unsecured Loans have a maximum term of 5 years and could provide the funds for fitting out a dining area, or refurbishing a bar area.

We’ll discuss your needs, and help you find the kind of loan to fit your business. 

Asset Finance - Leasing and Hire Purchase

Your pub also requires a wide range of equipment. A new kitchen will need ovens and ranges and refrigeration. A new sports bar may need a large television and sound system.

Asset Finance lets you spread the cost of equipment - or assets -  while those assets are already working for you. There are several types of Asset Finance:

Hire Purchase lets you hire assets until you have paid for them. It can be a simple way to spread the cost of items - such as a restaurant oven or seating – that you expect to give long service and will want to keep for the long-term.

HP agreements generally last between 12 and 72 months and require a 10-20% deposit plus fixed monthly instalments. 

Leasing is much like a rental agreement. You pay a monthly charge to use the asset, which may never become your property. With some arrangements maintenance, repairs, registration will be the owner’s responsibility, giving you the asset without any of the additional costs of ownership.

It’s common for things such as large screens and refrigeration equipment which will have a limited life – it means you can easily update your equipment when you need to.

Our Asset Finance team can help you lease or Hire Purchase almost any type or value of asset, new or used. Find out more here.

Refinance Existing Assets

Your new venture will have money tied up in existing assets. Asset Refinance lets you use that money to fund your business, while still having full use of your assets. It works by the finance company buying the asset in question from you, which can provide you with the cash sum you need. They then allow you to buy the asset back from them - but with a new finance arrangement.

You can use your cash again, or reduce your monthly outgoings. Find out more here.

Cashflow Funding

Cashflow is a major challenge for every business – but there are ways to help.

Revolving Credit Facilities work by offering you a line of credit with an agreed limit, so that you can call on it when you need to. You only pay for the money you take out, so it can be a cost-effective way to raise funds if you need them in an emergency, or for the short term.

Merchant Cash Advances, on the other hand, may be ideal if you take payments through a card terminal or PDQ machine. The lender works with your payment company and can advance you the equivalent of up to one month’s turnover, which is repaid by automatically deducting a proportion of the payment every time that a customer pays by card.

We can work with you to help you find the finance you need to smooth your cashflow.

Tax Funding

Quarterly VAT or an annual tax demand can cause serious problems for any business' cashflow. Tax Loans are a solution that help you to spread the cost of tax demands and turns them into more affordable monthly payments.

• Better control of cash flow
• Predictable monthly payments
• Quick and simple to arrange
• Avoids penalties

Find out how a Tax Loan could support and smooth cashflow for your pub business. 

How we help you capitalise your pub business

At Rangewell, we work across the entire lending industry and we have finance experts with personal experience in the needs of the pub and hospitality sectors.

That means we can provide a unique service. We will help you to find the most appropriate funding from lenders across the market – from established high street banks to alternative funding suppliers. We offer every type of finance - including Unsecured & Secured Loans, Invoice Finance, Asset Finance, Merchant Cash Advance, Commercial Mortgages, Bridge Loans, Property Development Finance, Growth Finance and more.

We know the lenders who understand the needs of the catering and hospitality industry and the most competitive rates for all types of lending. We can provide access to funders specialised in the sector, offering discounted rates, higher LTV’s and potentially lending on 100% goodwill.

Call us to cut the cost of finance your pub needs

Getting the most cost-effective source of finance can be crucial for the future of your pub business.

Coming to Rangewell means getting finance experts working to help you find you the most competitive funding for all your business needs - whether you're looking for pub or bar and club finance.

Our promise is simple, We can help you cut the cost of investing in and running your pub. Call us to discuss your needs.