Commercial mortgages for pubs

If you’ve decided to fulfil your dream of running a pub or simply fancy a career change, you’ll likely need to borrow funds to help cover the cost of setting up your business.

This blog explains all you need to know about financing a pub.

What is pub finance?

Pub finance is an umbrella term that covers the different financial solutions often needed to get your pub business up and running. Pub finance can be used to cover dips in cash flow, pay for inventory, renovate an existing premises or buy a new one.

In some cases, funds could be transferred to your bank account within a few hours. Repayment terms depend on the type of finance you’ve applied for. Unsecured pub loans, for example, need to be repaid over one to seven years, while pub mortgages can be repaid over a period of up to 30 years.

What is a pub mortgage?

A pub mortgage is a type of commercial mortgage that’s used to buy or refinance a pub, nightclub or bar.

Pub mortgages are similar to regular commercial mortgages in that you borrow a lump sum to repay over many years. But lenders will generally have specifications about what type of business they are prepared to lend to, which means pub mortgages can be harder to qualify for.

You’ll need a pub mortgage if you want to buy the pub premises outright so that you have complete control of the business. This differs from leasing a pub, where you still run the business, but lease the premises from a leaseholder – often a brewery.

How do pub mortgages work?

As with all mortgages, a pub mortgage must be secured against your property, or even multiple properties. You repay the amount borrowed in regular instalments over a term of between five and 30 years. Repayments are usually monthly, but some lenders will let you pay weekly or quarterly. Interest rates can be fixed or variable.

Pub mortgages can be on an interest-only or capital repayment basis.

• If you choose an interest-only mortgage, you’ll only need to repay the interest, resulting in lower monthly repayments. But at the end of the term, you’ll need to pay off the original amount borrowed, so you’ll need a suitable repayment plan in place.
• With a capital repayment mortgage, you pay off a portion of the capital, plus interest, each month. At the end of the term, there will be nothing left to repay, and you’ll own the property outright.

Who can apply for a pub mortgage?

You can apply for a pub mortgage whether you’re an individual, a partnership, a limited liability partnership or a limited company. You must be at least 18 years old.

You might apply for a pub mortgage to buy a new property or refinance an existing one.

Am I eligible for a pub mortgage?

Pub mortgage applications will be individually assessed. Whether you’re eligible will depend on several factors, including:

• Your affordability: Lenders will want to see that you can comfortably afford your repayments. To do this, they will examine your trading history and accounts. They will also look at existing levels of debt.
• Your business plan: A robust business plan that outlines projected earnings and a budget for costs will work to your advantage. This is particularly important if you don’t have a trading history.
• Your business credit history. A good credit score means you’re more likely to be accepted and secure competitive interest rates.
• Your experience: Many lenders will be looking for at least two to three years’ experience in the hospitality sector, ideally running a pub or another business. If you’ve never run your own business and have no experience in the hospitality industry, you may struggle to get accepted for a pub mortgage.
• Whether you have the necessary licences: At a minimum, you’ll need to have a personal licence and premises licence.
• Your deposit size: You’ll need a deposit of 30% to 45% to qualify for a pub mortgage.

In addition, some lenders will look at the pub’s previous trading accounts, and the pub’s location may also be considered.

How long does an application take?

Pub mortgage applications can usually be completed within six to 12 weeks. However, this will depend on whether you have the necessary details and documents to hand, as well as the complexity of your situation.

How much does a pub mortgage cost?

Pub mortgage interest rates can range from 3% to 7% per year. But this will depend on:

• The size of your deposit: The less you borrow, the less you’ll usually be charged
• Your credit history: A higher credit score generally means a lower interest rate
• Your trading history: A business in good financial health is more likely to secure a better rate.

Interest rates can be fixed or variable. If you choose a fixed-rate pub mortgage, the rate will remain the same for the term of the deal, usually two to five years. This means your monthly repayments will also be stable.

If you choose a variable rate deal, the mortgage rate and your monthly repayments could go up or down.

Where can I get a pub mortgage?

You may be able to find a pub mortgage with any of the following lenders:

• High street banks: Mortgage rates can be more competitive with high street banks. You’ll usually need to speak to a specialist in the commercial lending team who has experience with pub mortgages.
• Challenger banks: A few challenger banks offer pub mortgages. These banks tend to have more flexible lending criteria, so their mortgages are often easier to get accepted for. But this also means you’ll pay a higher interest rate.
• Specialist online lenders: A mortgage with a specialist lender can be the most flexible option as they often accept applicants with poor credit or weaker trading accounts. Again, interest rates will be higher and you may need a larger deposit.

Can I get a pub mortgage with no deposit?

It might be possible to get a pub mortgage without a deposit. But you’d need another form of security, such as the equity in another property you own, to qualify. It’s best to discuss your situation with a mortgage broker who will be able to tell you which lenders are more likely to accept an application with no deposit.

What is a pub loan?

A pub loan enables you to borrow a sum of cash from a lender. You repay this sum, plus interest, in monthly instalments over a set term. Terms are generally shorter than pub mortgages, although this depends on the lender and whether the loan is unsecured or secured.

Unsecured loans, which don’t require collateral, are usually repaid over one to seven years. Secured loans have longer repayment terms.

What can I use my pub loan for?

Pub loans can be used for a variety of purposes, such as:

• Buying inventory
• Hiring staff
• Renovating your premises
• Outdoor maintenance, such as garden landscaping
• Buying a vehicle for the business
• Paying for kitchen equipment
• Marketing and advertising costs

How much can I borrow for a pub?

This will depend on the type of loan you apply for and the lender. Unsecured pub loans might let you borrow from £1,000 to £500,000. Secured loans typically let you borrow upwards of £250,000.

The amount you can borrow will also depend on your credit rating and affordability, as well as your business’s financial health. The stronger these are, the more you can borrow.

What do I need for a pub loan application?

When applying for a pub loan, most lenders will want to see the following:

• Three to six months’ worth of bank statements
• Tax returns for at least the past two years
• A cashflow forecast
• Your exit strategy to show how you will pay back the loan
• Proof of identity and address

If it’s a secured loan, you’ll also need to provide details of the security you’re offering.

You must be at least 18 years old and have a UK-registered business. Some lenders will ask that you’ve been trading in the UK for a minimum period – often around three months. However, lender criteria will vary, so check carefully.

How can I apply for pub and bar loans?

You can usually apply for a pub loan directly with the lender or you can apply through a broker.

A broker can assess your financial situation and help you find lenders that are more likely to accept your application and offer the most competitive interest rates. A broker can also offer support when completing your application, making it a much smoother and less stressful process.

Here at Swoop, we can help you find 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. Register with Swoop to get started.

What are the benefits of pub business loans?

One of the biggest benefits of pub business loans is that they can be quick and easy to set up. You might have the funds in your account in just a few hours.

As mentioned, pub loans can be used for a range of purposes, giving you the flexibility to spend the cash as you see fit. Monthly repayments are often fixed, making it easier to budget and interest rates can be low. What’s more, if you make your repayments on time, you’ll steadily improve your business credit score. This can boost your chances of getting access to more credit in the future.

What are the typical interest rates on pub finance?

Pub finance interest rates typically start from around 3.5%. You’re more likely to qualify for lower interest rates if you have a good trading history, excellent credit, and your business is financially robust.

Higher rates will usually apply if the lender views your business as a higher risk. This might include businesses with a poor credit score or a limited trading history.

Get started with Swoop

Our team at Swoop would be happy to discuss your requirements with you to help you find the right pub finance deal and support your application. Begin with the best deal to give your project the best start possible. Apply now.