Lenders bank on your skills

If you work in a pub, your experience could make it easier to buy your own business, writes loans expert Patrick Ryan.

Many people who work in the pub industry - in various capacities - do not realise that they have the necessary skills and even the potential financial backing to enable them to set up a business of their own.

In recent years there has been a sea-change in the attitudes of banks and lenders towards assessment of applicants and their proposed purchase.

These days, they are much more interested in the skills and experience which aspiring purchasers are bringing to the table than in the more mundane, though still important, assessment of bricks and mortar and the level of deposit, factors which used to determine whether or not applicants were awarded a loan.

Those already working in the pub industry, by the sheer nature of their experience, make ideal applicants.

It is a sad fact of life that many enterprises fail because of lack of financial control, inadequate working capital and a poor understanding of the innate workings of the business.

These skills are second nature to many people working in the pub sector.

Banks and lenders now attach considerable weight to factors such as how much experience an applicant has of his or her chosen market sector, the range of relevant skills and qualifications, the quality of the underlying cash flow and loan servicing and the individual's character, ideas and determination to achieve their ambitions.

Of course, they still expect potential buyers to invest some of their own equity in the business they are purchasing and it is this requirement that often discourages people from seriously considering owning their own business.

Many believe - wrongly - that they will not get a sympathetic hearing from brokers and bankers because they think they lack the necessary capital. But in our experience this is not necessarily a barrier these days to someone with imagination and a concept.

While it is true that many people acquire that all-important capital through redundancy or inheritance, there are several other methods by which substantial funds can be raised. People often have a large amount of equity built up in their homes, a proportion of which they can put towards the financing of their business.

There are now Inland Revenue-approved schemes which allow you to use your accumulated personal pension to raise equity and leverage debt. This is a highly efficient way of making use of your pension because - subject to the right company structures being put in place - the vast majority of any gain from subsequent disposal of the asset can be sheltered from capital gains tax.

We strongly advise that you seek specialist tax advice on this area as it is complex and there are stringent revenue rules on what is and is not an allowable investment.

However, we are aware of several premier league banks who will look favourably on this scheme as a source of funding. RCC Business Mortgages recently raised funds for a senior finance director of a hotel company in this way and he is now trading merrily in a substantial hotel in the South of England.

Meeting a business "angel" is another option. A good example of this is one of our clients, a food and beverage executive with an international hotel group, who wanted to buy a branded hotel in the UK but lacked the financial resources on his own.

He found a business angel willing to back his ideas and skill and together they set up a joint venture company with the backer funding a significant amount of the equity for a majority shareholding in the new company. RCC Business Mortgages can suggest appropriate business angels that can be contacted. There is, however, no substitute for "putting shoe leather about town".

You will have to be prepared to knock on lots of doors and even to be disappointed when you are rejected.

But if you have the hunger to succeed and the curriculum vitae to impress banks and lenders, there is no reason why you shouldn't one day be the proud owner of your own pub.

Patrick Ryan is managing director of RCC Business Mortgages, a division of Christie & Co. For more information call 020 7535 5000.