Abbott: Explore alternative funding for investing in your pub

However, it is more important than ever for pub owners to invest in their businesses if they are to have any chance of survival and to help reverse this downward trend.
 
It is no secret that bank funding has been in short supply since the start of the financial crisis and resulting credit crunch. The need to repair bank balance sheets and tighten lending criteria has meant that an already pressured industry, such as the pubs sector, is being starved of traditional funding from the banking community.
 
To fill the funding gap, alternative sources of finance, old and new, have stepped in to service the demand from a range of SME businesses sectors. The market place is now well serviced by suppliers, including high interest short-term loans; equity partners; invoice finance; and business cash advance suppliers.
 
There has been a great deal of publicity recently for high interest loan providers moving from the personal lending to corporate lending markets. The ‘same-day’ turnaround times will be tempting to many pub owners looking to fix their cashflow problems.

However, with strict late penalties and pre-fixed weekly payments, these facilities should only be used for short-term emergencies. The minimum turnover requirements of £20,000 per month and two years’ trading history can also cut out a lot of small independent businesses, particularly in the pub trade.
 
Invoice finance is a funding type that has matured in recent years and developed into a credible source of finance. It enables a business to draw down funds against sales invoices from its customers before they are paid. Invoice finance can help a company through its cashflow problems and give it the financial breathing space to concentrate on running the business, but only if the business invoices its clients for services performed.
Finally, business cash advance is the most recent entrant to the UK funding market. A business cash advance enables a business to receive funding against future credit and debit card sales. Typically, a business can secure an offer of up to a month’s credit, debit and contactless card turnover, in a couple of days with the cash transferred shortly afterwards. Qualification criteria are not difficult to meet, with no personal guarantee, and requiring the submission of six months card payment statements and a couple of months bank statements.
 
As business cash advance comes with a fixed fee, and does not have an APR, late penalties or a fixed payment term. Repayments are made as a fixed percentage of a pub’s daily card sales, therefore repayment follows the fortunes of the business, good or bad. In the US, the business cash advance industry has become one of the leading alternative funding sources, servicing a range business types of all sizes.
 
Its success can be attributed to its ability to support business growth, and investment out of daily cashflow, enabling business owners to respond rapidly to market opportunities. For publicans, its most obvious application is for marketing, expanding/refurbing premises, buying stock or investing in new indoor/outside catering equipment.
 
Despite government’s best efforts, the banks are unlikely to loosen their purse strings, but, the market is now creating more options for dynamic publicans to secure finance.

As always, business owners should consider all options before choosing a funding line that is right for them and that achieves short term objectives without creating a long term liability in the event that market conditions change.
 
David Abbott is UK managing director of Boost Capital​​