An introduction to commercial mortgages for nightclubs and bars

As one of the most popular forms of entertainment for the 18-30 age group, the hedonistic world of nightclubs and bars holds great appeal for many entrepreneurs. However, raising appropriate finance for a nightclub or bar can be difficult. The industry’s reliance on trends in music and fashion, the need to comply with complex licensing legislation and the high turnover of staff can make it an undesirable proposition for many commercial lenders.

This article provides an introduction to what the high street banks and other commercial lenders will consider when deciding whether your application for a commercial mortgage is accepted or rejected. 

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 a nightclub or bar differs from other sectors

The nightclub industry is often viewed as the domain of the young and wealthy with cash to invest. The reality is often completely different but the perception that the industry has a high turnover of proprietors, combined with the large number of clubs that close after a short time, means you’ll often struggle to raise the finance you require.

Seen as a high risk by many lenders, unless the business plan is well thought out, well presented and backed up with security and a substantial deposit, it can be difficult to convince most high street lenders to consider a commercial mortgage application for a nightclub or bar.

However, there are specialist commercial lenders who may be willing to agree a commercial mortgage for businesses in this industry. In addition, the advice and guidance of an independent intermediary in putting together a business plan and presenting the business to lenders can be invaluable.

Whether you contact a high street bank or an independent lender, they will want to know:

• The trading history of the nightclub or bar, 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 nightclub or bar
• The amount of deposit you have available
• Whether you have an adverse credit history

In addition, the lender will want to know if the nightclub or bar is tied or if it is an independent business. A tied nightclub or bar, for example, is often restricted in the variety of alcohol it can sell as this often needs to be purchased from the brewery landlord. A freehold, independent nightclub or bar, however, is free to source its stock from a range of drinks manufacturers. This can make a difference to the initial start up costs and to the amount that needs to be borrowed.

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 optimum rates and terms at a later date.

While it can be difficult to raise a commercial mortgage for this type of business, with the right advice and guidance you could be opening the doors to the latest fashionable nightspot 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.

Copyright © 2006 The Diverse Finance Company

copyright © 2005 Diverse Finance Ltd. All Rights Reserved.