Pubs sector: do banks care?

Does last week's announcement on banks agreeing to offer more funding to small firms mean that the banks have finally "bucked up" and will start lending more to pubs?

When the problem first arose in 2009, the MA launched Buck up Banks after hearing horror stories from licensees about banks' blanket policy of not lending to the sector. The banks have now promised to lend £72bn to small businesses as part of the so-called Project Merlin, so what does it mean for the sector?

Paul Thompson, partner at Acorn Commercial Finance, believes the banks have always been lending and the announcement last week just reinforced that. He said the problem lies with the tight criteria used to determine lending.

"Lending went off a cliff in 2008," says Thompson. "The goal posts moved so that no business could comply, but the criteria have gradually loosened. We've got to prove why in each case now."

Fewer applicants​

But Thompson has found that there are fewer people asking for loans, simply because they think they won't be successful.

"A large number of people we talk to think there's no point in asking . We just have to do more work before submitting an application."

He adds: "There are a lot of cheap pubs on the market and people who can afford them should be thinking about it. It's possible to buy a decent freehold if you have a good deposit, good experience and good cash-flow — even two out of the three would work. I've seen a lot of people complaining on the MA forum about the pubcos' disposals, but this really is the chance for people to get in there and buy the freeholds."

Competition​

Christie Finance's head of mortgages David Grant said although the firm has seen growth, securing 11% more loans than last year, this could just be from demand, not because banks are more willing to lend.

"The situation has not improved dramatically," he says. "We've seen growth from the demand. As a result of our expertise, there are more people coming to us because they can't do it themselves."

Competition is also a big issue. Grant says the situation could ease if the banks start competing for business. "Now, when the bank makes you an offer, it's a take-it-or-leave-it approach — in the past, a business could ask for the best deal, having been to other banks. But this will only change when the debt issues pass."

Low level of confidence​

The Federation of Small Businesses' chief spokesman, Andrew Cave, also thinks there needs to be greater competition, but in the form of more banks. "There are only four main banks in the UK, unlike in Germany, France and the US where people have more routes.

"It's quite clear that the hospitality sector has the lowest level of confidence. This dropped further in the last quarter of 2010 and I think that will continue this year. It's essential that they deal with pubs individually rather than as a whole sector."

• Has your bank told you it still won't lend to pubs? Email thewvg.qrtha@jeoz.pbz​.​