Cash Is King
There is one basic thing a lender will want to see and that is a detailed cash-flow forecast for your business, not just to demonstrate your pub’s ability to generate the funds to pay all your bills (including loans) but also what additional financial support your business may need on occasion. Suffice it to say your ‘business story’ and ‘numbers’ must make complete sense as in the current market lenders don’t need much of an excuse to turn you down.
The institution you are seeking finance from will also want to know about your track record, which if you’re just starting out in business may be problematic, however, being able to demonstrate your management capabilities may go a long way to convincing them you are a ‘safe bet’. For instance Barclays, put great stock in management skills and base 30%-50% of their commercial decisions on this single factor. After all, even with the best business plan and most encouraging set of financial figures, if you can’t manage the business you’re proposing to enter into then they’re bound to think their investment may not be appropriate.
For a more detailed look at the subject of cash flow click here for my separate article.
Top Tip – Apart from the advice I’ve already given you might consider putting ‘all your eggs in one basket’ by offering a bank the opportunity to make more money from you. One thing likely to make tem say “no” is if you refuse to use their business bank account for your business. Whilst unlikely, it can’t hurt to offer up things such as your business insurance (if they can offer a suitable pub-specific, competitive policy) and using their merchant services for credit/debit card processing.
No Doesn’t Necessarily Mean No
Just because a high street bank declines to offer you the funding you need to start or expand your pub business it doesn’t mean you have to give up as there are several other lending sources you can approach, some of them might even be a better fit for your business than the banks.
Over the past few years a new breed of bank has been springing up in the UK.
Shawbrook, the independent bank formed in 2011, has seen a steady increase in small business customers, in particular pubs, hotels, offices and retail premises. So if you’re looking for a more sympathetic ear than the big high street names, they may be worth approaching
Chief executive Ian Henderson said: ‘There is immense frustration at the behaviour of the big banks, and firms are realising they have a choice. We are seeing a significant increase in those coming to us, especially from businesses that have had the funding tap turned off by their previous bank. While businesses in the pub sector have faced tough challenges, our manual underwriting combined with our lack of bad debt means we can see there are some very good businesses that should be funded.’
You should note Shawbrook only take cases from approved brokers, such as Acorn Commercial Finance, who specialise in the licensed trade.
Karen James became the tenant at the Severn View Inn, in Lydney, Gloucestershire, in 2004. The pub was taken over by Punch Taverns the next year and after a number of rent rises, Karen, 45, decided to buy the pub from Punch. Her high street bank offered a loan of 70 per cent of the value of the property, but said it was unable to help her with the loan she needed to cover VAT payments.
Karen said: ‘Things were going well, but when my bank couldn’t offer me a VAT loan the whole thing came unstuck. It was frustrating not being able to secure the finance.’
Instead, she contacted Acorn Commercial Finance, a specialist mortgage broker for the pub and leisure sector, which recommended Shawbrook. Karen said: ‘The bank understood what I needed and that the pub was running successfully so was prepared to lend me what I needed. Business is booming.’
(This case study was featured in Big Hospitality)
Other challenger banks include Triodos (who lend to co-operative and community ownership groups) and Metro (who are growing rapidly and are a good alternative, especially if you are in the South East).
You may come across Aldermore and Interbay, you should note they don’t lend to the pub trade.