An introduction to commercial mortgages for pubs
Whether it’s a cosy village drinking establishment, or a brash modern party venue, the pub is an intrinsic part of the social lives of many individuals in the UK. Recent changes to liquor licensing laws, which have given publicans greater control over their opening hours, are working to make the industry increasingly attractive to entrepreneurs.
Pubs, however, can be difficult businesses to start up. Long, irregular hours are standard, there is a range of complex legislation that must be adhered to and raising appropriate finance can be tricky. So if you are an established publican wanting to make improvements to your pub or a newcomer dreaming of pouring pints in your very own pub, it’s a good idea to know the ins and outs of raising a commercial mortgage in this sector.
What is a commercial mortgage?
A commercial mortgage can be used by both start up or existing businesses to finance the purchase of buildings or land and to make improvements or modifications. It can be arranged through a high street bank or through a commercial lender and can provide up to 85% of the purchase price; however this will vary depending both on the value of the property and on the maximum loan-to-value ratio of the individual lender.
The lender will normally require a deposit of 20-30%, and will want proof that the repayments can be met. Existing businesses will need to provide a full set of trading accounts covering the last two years, while start ups will need to provide a full business plan showing the expected income projections.
How raising a commercial mortgage for the licensed trade differs from other sectors
Businesses in the licensed trade are often seen as cash rich enterprises with a high turn over of proprietors. While this isn’t always the case, particularly with freehold pubs, many prospective lenders will put pubs in a high risk category, which can make a huge impact on mortgage availability and rates.
As a result some mainstream banks are not always willing to provide commercial mortgages to pub proprietors so it may be worthwhile investigating other independent commercial lenders who might be willing to provide finance for this type of venture.
Whether you contact a high street bank or an independent lender, they will want to know:
- The trading history of the pub or relevant income projections for a new venture
- Details of the required permits and licenses
- Whether you have experience in the licensed trade
- The location of the pub
- The amount of deposit you have available
- Whether you have an adverse credit history
In addition, the lender will want to know if the pub is tied to a brewery or if it is an independent freehouse. A tied pub is often restricted in what it can sell in terms of beer (and sometimes spirits and wine) as these often need to be purchased from the brewery landlord. A freehold, independent pub, however, is free to source its stock from a number of breweries and drinks manufacturers, which can make a difference to the initial start up costs.
The lender will also be interested if there is private residential space attached to the business. For example, if 40% or more of the property you wish to purchase for your pub comprises residential space, and you plan to occupy that space, the mortgage will have to adhere to current FSA residential mortgage regulations.
If you initially struggle to achieve the interest rate you had targeted it is worthwhile keeping in mind that you will have the opportunity to re-mortgage with another lender to achieve your optimum rates and terms at a later date.
An independent intermediary can help you find the best commercial mortgage for your situation. They have the knowledge and experience to negotiate with a wide variety of lenders on your behalf. So with their help, hopefully you’ll be pouring pints in your own premises in no time.
Contact us to find out more about how The Diverse Finance Company can help you raise a commercial mortgage or take advantage of other business finance solutions.
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