How to finance a pub purchase

You want to get into the pub trade, but you've heard banks aren't lending. Perhaps you are already in the trade and want to expand or take on a pub of your own for the first time, but again, you've heard reports that the banks don't currently want to put money into pubs.

So where do you stand? Well, firstly, that's not the whole picture. It is true that some banks don't currently want to lend to the licensed trade, but there are plenty out there that do. However, of those that are, many are being much more fussy about who they lend to.

"Gaining finance to purchase a pub is more difficult than it used to be," says Paul Thompson, a partner at leisure purchase and finance specialist Acorn. The company specialises in sourcing finance for licensees wishing to buy a freehold pub or lease or expand their business. Some of the deals that happened two or three years ago are just impossible now," he says.

"We used to have deals go through where people could borrow 75 per cent of the market value, at 1.5 per cent over base rate. It's now closer to about 70 per cent but at 3.5 per cent over base rate. We are finding that we are having to approach a number of different lenders whereas in the past it would have been accepted immediately. They are now looking for reasons not to lend money."

David Grant, head of UK business mortgages at mortgage brokerage Christie Finance, a sister company to property agent Christie + Co, agrees.

"Many lenders are now restricting the percentage of loan to value. For example, historically there are many cases of 75 to 85 per cent of the pub value being lent. That has come down in some cases to 60 or 70 per cent," he says. "It is very reminiscent of the early 1990s. There are lots of conditions for lending and things are very difficult if you don't prepare a decent application."

Both Christie and Acorn put together business proposals for people wanting to secure finance to purchase a business and assist clients with their business plans. They know which banks to target and what lenders need to see to feel confident enough to release finance. In this new era of limited lending, both say that deposits and a strong application are everything.

"If you are going to get the best deal in the market," says Thompson, "then you need a great history in the trade, a good deposit [around 30 to 40 per cent] and a good property to buy. If one of those things is slightly weak, you might be able to get away with it.

"But if you haven't got a lot of money and have no experience in the trade and the property isn't fantastic, you've got three things against you and that deal just isn't going to happen."

Grant agrees that newcomers may find it hard to secure finance. Applicants will need to prove they have success in their career to date and have the skills to run a business.

So who exactly are the banks lending to and how can you secure finance if you want to buy?

Gaining industry qualifications, such as attending courses accredited by the BII, can help strengthen an application. But Grant says that the biggest obstacle to securing finance is not doing your homework.

"The basics are still exactly the same. If people are looking to arrange finance the thing to do is research the business you are buying, obtain the accounts if you can and put together some projections and a plan of how you are going to run the business once you have bought it.

"Joe public, generally comes in with information on the back of a fag packet. We look to co-ordinate the whole process from organising the valuation and appraisal of the business they want to buy to submitting an application.

"People frequently just assume that if a business is operating well under current ownership, that it will continue to operate well under theirs. It's not the case."