Crowd Funding
This is a relatively new lending concept whereby a business makes a pitch to an online community of “micro investors” who invest small amounts in many businesses. For more details head on over to UK Crowd Funding Association an umbrella organisation of 14 crowd funds.
Acorn4Finance is the only specialist crowd fund for the pub trade and can be contacted here especially if you’re looking for funding in East Anglia.
Paul Thompson from Acorn4Finance says: “We’ve become increasingly frustrated with existing crowd funding platforms and their requirements, such as the need for two years financial history as a limited company. This can be difficult for many businesses and impossible for those looking to enter the trade. We realise there is a need for funding for those who wish to purchase leases or the freehold of a pub they already lease. Even though these businesses might be perfectly sound, many operators simply don’t have enough for the cash deposit, let alone the VAT levied on freehold purchases. That’s why we’ve set up Acorn4Finance because we are used to working with purchasers, so we’re already geared up to undertake all the due diligence a bank would expect. We’ve simply applied that way of working to our own crowd funding site.”
Community Ownership/Co-operative Ownership
With the implementation of The Community Right To Bid (Localism Act 2012) & the introduction of “Asset of Community Value” by many local councils around the country to protect local amenities, including pubs, there have been several high profile success stories. Locals have banded together to save their cherished local pub from closure and redevelopment by buying the premises, refurbishing and re-opening them by means of share issues and community or co-operative management schemes. Four which may give you some ideas are The Ivy House, The Tally Ho! , The Case Is Altered and The Bevandan. The Tally Ho! and The Case also helped their investors to claim Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) tax relief of up to 50% against their investments, which made the investment more attractive to investors.
The Plunkett Foundation is closely allied to the co-operative movement and they actively support co-operative ownership of pubs.
The Pub Is The Hub website is packed with further information, case studies and advice and is well worth a visit.
Merchant Cash Advance
For some established businesses a Merchant Cash Advance can be the solution to their funding requirements, put simply a lender advances you a loan based upon your credit/debit card receipts and recoups the capital and interest charged by diverting a portion of each and every card purchase to their account, with the balance going to your account.
Case Study
Samantha and Robert McDermott turned to United Kapital to provide working capital for the Hare and Hounds, their Stockport pub, after balking at interest rates and charges amounting to 40 per cent of the loan value being offered by their bank. In comparison, United Kapital takes a fee of 18 per cent on money loaned. It also suits the Hare and Hounds’ business environment, where 90 per cent of customers pay by credit or debit card.
Although the McDermotts had to change the bank providing the credit card readers that customers use to settle their bills, the overall process of getting finance from United Kapital was much easier than a term loan application with a bank, Ms McDermott claims.
“You don’t have to go into the background of what you want the money for, as you would with a bank,” she says. “You send some bank statements, get a credit check and you are approved.”
The McDermotts also find this way of borrowing appealing because the charges are taken automatically as payments are made by customers rather than arriving as a monthly bill from the bank.
“It is brilliant because I know exactly where I stand,” Ms McDermott says. “I also do not have to worry about keeping money back to pay the interest on a bank loan.”
Using Your Own Money
Which brings us back to where we started, using your own money, for many would-be publicans this ends up being their only option. If you end up self-funding your pub then you should try to be as objective as possible when assessing the financial viability of any pub business you consider and apply as much due diligence, research and scrutiny to the project as if you were approaching a commercial lending source.
As ever I cannot urge you more strongly to seek and take independent, professional advice from your accountant, solicitor, surveyor and stock taker before entering into any pub business.
Top Tip – when choosing any independent professional advice, such as a solicitor, make sure they have experience of the licensed trade, you’ll save a lot of time, effort in explaining your business and money in unnecessary fees.
Glossary of Funding Terms
Capital – financial assets or the financial value of assets, such as cash; the premises or equipment owned by a business
Working Capital – the difference between a business’ current assets (cash, stock etc) and its current liabilities (bills to be paid, wages etc) If the latter exceeds the former then the business is said to have negative working capital and in order to continue to function may require an injection of working capital. (This could be in the form of a short term loan, overdraft or the introduction of personal monies to the business).
Equity Finance – the act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. Also known as “share capital”.
Collateral – property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. Because collateral offers some security to the lender in case the borrower fails to pay back the loan, loans that are secured by collateral typically have lower interest rates than unsecured loans. A lender’s claim to a borrower’s collateral is called a lien. Typical collateral or security might be a the freehold business premises, residential property owned by the business owner(s) or the ‘beneficial interest’ in a long lease.