Canada is a mecca for pubs. With almost 3,900 establishments selling a diverse array of food and drink, the sector generated almost $2.2billion in sales in 2022.
This figure is down on pre-pandemic levels, and with new and rising costs to cope with, the Canadian pub industry still needs financial support. Pub financing offers a choice of loans to fill the gaps in cashflow, pay for renovations, and bring pubs back to life. Instead of calling time at your local, pub loans can make your pub a hospitality powerhouse.
Pub finance can be used to cover cashflow dips, buy inventory, refurbish premises, even buy a pub or join a franchise operation. Some pub loans can place a lump sum into your bank account within a matter of hours and repayment terms can range from one year or less for a cashflow loan, to many years for a commercial mortgage. Interest rates will vary according to the type of loan, the repayment terms, and the status of the borrower.
Let’s look at the different types of financing available for your pub:
The hospitality trade can be very seasonal. Sales may rise and fall throughout the year. Cashflow loans can help pubs through the quiet times and are popular type of finance.
Cashflow (working capital) loans for pubs include:
This type of pub finance can provide a large sum that’s secured by a legal charge over the mortgaged property. Commercial mortgages can be used towards the purchase of a pub, releasing equity to develop or invest in a pub, refinancing to benefit from a lower interest rate, or to consolidate existing short-term debts into one manageable monthly payment.
Commercial mortgages are usually repaid over 25 years, but repayment terms can be as short as three years. These loans are suitable for pub landlords who own the premises their pub operates from, potential landlords seeking to buy a pub, commercial developers wishing to redevelop a pub, and commercial property investors looking to invest in a pub or group of pubs. Interest rates on commercial mortgages are often higher than for residential property loans.
Please note, that for this type of finance typically a minimum deposit of 25% of the purchase price of the premises is required.
Leasing and hire purchase are examples of asset finance. Pub owners who wish to make a capital purchase, (such as a vehicle, or large kitchen equipment), can use the value of the item being purchased as security for an asset-based loan. The good thing about these types of loan is that you can use the asset as you pay for it. Generate income for your business while you pay back the loan in regular monthly payments.
Alternatively, pubs that already own hard assets could use those items as security for a lump sum loan that can be used for almost any business purpose. This kind of lending is called Asset Re-finance and it’s a good way for pubs with hard assets to borrow quickly and at economical rates.
Franchise operations are big business in Canada, and many pubs, bars and clubs are part of a franchise group. Buying into a pub franchise will give you ready access to a known brand, marketing support, supplier streams, and easy purchase of big-ticket items such as interior fittings and kitchen equipment. However, pub franchises are not cheap. The entry point to major pub brands begins at $25,000 and can be substantially higher when all the startup costs are added on.
Some pub franchisors (the people you buy your license from), may offer franchise funding to cover the startup and ongoing costs of operation. Where this option is not available, franchisees (that’s you), will usually obtain the necessary funding via a mix of the pub loans listed above. For example, asset finance loans buy all the expensive equipment, while a term loan pays the franchise joining fee. This type of combination lending could be supplemented with a cashflow loan, such as a merchant cash advance, once the pub is up and running.
Crowdfunding works from online platforms and the cash they generate is not a loan, it’s a gift or an investment. This means the recipient (you), does not have to pay the money back provided you use the cash for the purpose you said you would. In most cases, funds for projects are given by private individuals – friends, relatives, and strangers – who are attracted to your project and wish to chip in to help you succeed. Critically, you will need a compelling story to gain their interest and their money – for example, you are raising funds to renovate a once-loved village pub that’s been closed for years. Crowdfunding works best for project leaders who have a large contact list and who use the power of social media to create a buzz.
Projects that propose a great story can sometimes secure far more funds than they originally asked for, although many crowdfunded projects fail to reach their goal.
Like crowdfunding, peer-to-peer lending works from online platforms that link private lenders with projects seeking funds. Most peer-to-peer lending takes the form of a term loan, with the borrower receiving a lump sum and paying it back over time. Interest rates and fees are usually agreed on a case-by-case basis, and loans may be secured or unsecured. Like crowdfunding, peer to peer lending may sometimes provide funds when no other option is available.
Starting a pub without any cash of your own will be challenging. Few lenders will provide 100% financing for any business venture and even less will do so without collateral as security. If crowdfunding or peer-to-peer lending is not available, another option would be to find a guarantor who has assets to secure a term loan and bring them in as a partner. A further option is to apply for a government-backed loan, which can provide up to $25,000 in seed money for new business ventures. Use those funds to get the pub off the ground, then grow the business with any of the cashflow loans shown above.
To decide which type of pub loan is best for you, first ask yourself what the funds are for. Do you need to cover short-term cashflow issues? Are you seeking to buy a pub? Do you want to buy items such as a vehicle or kitchen equipment? Different pub loans work better for different things. Your needs will determine the best loan for you.
However, before you apply, consider what you can bring to the transaction: For example, do you own property to provide as security? Does your pub have enough card sales to support a merchant cash advance? Successful pub loans are a combination of purpose and the applicant’s input but getting the balance right can be difficult. Obtaining expert advice from lenders who have experience in the Canadian pub industry before you apply for a loan is strongly advised.
With all the options available, finding the right loan for your pub can be tricky. Whereas individual lenders may only offer a small suite of options, working with a broker like Swoop will give you access to multiple lenders and a choice from many types of loan product. Qualifying criteria and loan terms and conditions will vary from lender to lender, but in virtually all cases, you will need to have been trading in Canada for a minimum period, (varies), have a Canadian registered business, and be over the age of 18. A healthy credit score is useful, but not always necessary.
Most lenders will want to see recent bank statements, tax returns, cashflow forecast, clear use of funds, and your exit strategy (how you will pay back the loan). Details of any security you may be offering, such as real estate, are essential. It is also worth checking your business and personal credit reports before you apply to ensure they do not contain errors that may have negative impact.
No matter if you’re seeking funds to cover cashflow or you wish to buy a pub, Swoop has the right pub loan for you. Even if you’ve been turned down elsewhere, it may still be possible to secure the funds you need. Apply in just a few minutes, and funds could be in your bank account in less than 24 hours. Contact Swoop today to get your pub loan process started.
Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.
Owner, F45 Cambridge
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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