Commercial Mortgages for Pubs2018-09-16T22:55:40+00:00

A Guide To Commercial Mortgages For Pubs

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Buying a pub is a dream for a lot of people in the UK, and we’re never short of enquiries from people who are looking to do just that. The good news is that whether you’re an experienced publican, or looking to get into the pub trade, we can often help.

Securing funding for a pub is a specialist area and depends on presenting the opportunity to the right lender in the right way. Presentation of the application makes can be the difference between success and failure, and with the industry in a state of transition, this is truer now than ever.

Key Criteria Points

There are numerous factors to consider when looking to purchase a public house, but with our extensive experience of working with lenders and borrowers in this sector we’ve got you covered.

Experience

Experience of running a pub is an important factor in the success of an application. This is especially true of applications where trading history is poor, or there are other problems with the pub. Even if you’ve never owned a pub before, experience in the industry is a massive plus for lenders, especially if you have an experienced team around you.

If you’re looking to buy a pub with no experience in the sector, then a strong history of running your own business will be a major positive. If you’ve not been involved in the pub or hospitality industry previously and you have no experience of running a business, the chances of your application being approved are slim.

Trading Performance

Trading performance is crucial to the success of the application and will be a deciding factor in which lenders will consider your application. For applications where previous accounts aren’t available, the lender will want to understand what the plan is for the new business and its likely ability to afford the repayments.

Applications for non-trading pubs or pubs without accounts will require a business plan and detailed projections. It’s important that these are available as early as possible in the application to allow the lender to make an informed decision on whether the loan is acceptable.

Accounts

Where accounts are available, the lender will usually want to see at least two years trading performance through full accounts, not abbreviated.

Where the future prospects of the business are likely to change, projections and a business plan can be used to show the expected future position. If projections are to be used for a trading pub, there will need to be a good reason for the expected change in profitability, such as the cutting of ties with a brewery, or introduction of food.

Finance Terms

Although each application will be individually assessed by the lender, there are a few common criteria points across the market.

  • Interest Rates – Although rates vary from application to application, interest tends to fall between 3 – 6% per annum. The size of the loan, your credit history, the Loan to Value (LTV) requested and the strength and trading history of the business will be key factors in deciding the rate charged.
  • Arrangement Fee – On top of the interest rate charged, the lender will usually charge an arrangement fee of between 1.5-2% of the loan amount.
  • LTV – The maximum LTV offered is usually up to 70% of the going concern value (the value of the building and business value combined). It’s worth noting that this is the maximum figure and will apply only to strong applications, weaker applications will be restricted to 55 – 65% of the going concern value.

Repayment Terms

Commercial mortgage lenders will usually lend for terms of up to 20 years on a public house, although many will restrict to a maximum of 15 years. Most lenders will insist on full capital repayment, although interest only may be possible where the loan to value is low.

VAT Loans

Where a pub purchase is VAT applicable, we are usually able to provide a VAT loan for up to 100% of the VAT amount, while it is reclaimed.

Refinancing A Pub

If you already own your pub and are looking to refinance to secure better terms, or to raise additional capital, the lender will assess the application slightly differently. If the pub is owner-occupied, trading performance will be vitally important and accounts and bank statements will be thoroughly checked.

For pubs which are let, the quality of tenant and length of lease will be key considerations. The application will then be checked against the normal rental coverage calculations for the lender.

Expanding Your Portfolio

If you’re looking to purchase a pub and already own another pub, which will continue to trade, the current pub may be used to help affordability calculations. Where trade from the current pub is resulting in excess profit, the lender may be more lenient on the affordability assessments for the purchase.

This could allow you to purchase a business that may otherwise be difficult to borrow against.

Timescales And Application Details

Subject to any delays in becoming personally licensed for the sale of alcohol, we are usually able to complete commercial mortgages for pubs in 6 – 12 weeks.

The speed of completion will depend on the complexity of the application and the availability of the information needed to assess the application fully.

Lender’s View

Lenders receive a lot of speculative pub purchase applications, which can shine a bad light on genuine applications. The key to success is to provide all the required information upfront and all in one go. By presenting the application efficiently and accurately from the start, you will set yourself apart from other applications.

Public houses can represent very strong businesses and lenders are keen to lend for the right proposition. Excellent lending terms are out there for stand-out applications.

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