Last reviewed on 21st August 2023 by Martin Alexander (Mortgage Advisor)
Buying a pub isn’t something you’d perhaps do often, so finding the right guidance can be difficult. That being said, if you’re looking to fund the purchase of a pub, you’ll require a commercial loan, such as a pub mortgage.
If you’re applying for a pub mortgage, you’ll need to make sure your application is prepared correctly. Buying a pub is completely different from buying a home as you’ll need specialist advice. Even a small discrepancy in your application can result in you being declined. This is why it’s crucial to get everything right from the very start.
This guide will summarise what you need to know before applying for a pub mortgage. There are many different options to raise finance for a pub, so it’s highly advised you speak to a professional before applying. Our advisors can help you when you’re ready to get started.
How to apply for a pub mortgage
It’s important to understand what lenders will require from your application. You can then begin to prepare your application accordingly.
To get a pub mortgage, lenders will assess the following:
- Your experience of running a pub
- Company accounts where possible
- Business plan
- Your credit history
- Security or guarantees you’re able to offer
Applying for pub finance is far from straightforward. Nonetheless, with the right advice and approach, buying a pub can be a straightforward process.
Applications can take around a month at the very best but often take up to three months. If you’re well prepared, your application will typically be assessed a lot quicker. Commercial mortgages vary quite considerably so you’ll need to be sure you’re applying for the right commercial product.
Do I need to have experience running a pub?
Experience in running a pub certainly helps support your application. This is because it provides lenders with confidence that you’re aware of how the industry works. If for instance, you’re buying a pub that has performed poorly or below average, lenders need to be confident that you’re able to turn things around.
Having no experience in this sector will leave lenders with little confidence as there’s no evidence to support your ability. On the other hand, if you already run a successful pub or have done so in the past, it shows lenders that you are capable and can give them confidence in approving you the finance you need.
This doesn’t mean to say that you have to own a pub before buying a new one. It simply means that industry experience is preferred. The main point here is that you need to show lenders that you and the team around you have the capability of running a successful pub.
If you’ve never worked in the industry, you will struggle to find lenders to approach. That being said, if the rest of your application meets a lender’s criteria, you may still be approved.
Will I need to provide company accounts?
When you’re buying an existing pub, you’ll need to provide the company’s accounts. This is so that lenders can assess whether your proposition is viable. Even if the pub you wish to buy hasn’t performed particularly well, you can still demonstrate its potential through your business plan and previous performance.
If you’re converting a new building or buying a pub that’s not currently operating, lenders will assess your projections and business plan. Again, the credibility of your projections and business plan will be based on evidence that you’ll need to provide. This can sometimes pose problems as it’s difficult to prove the credibility of a business without accounts and records of past performance.
The potential profitability of your pub is perhaps the most important factor for lenders to assess. This is why the majority of lenders will require at least two years’ worth of accounts where possible. Furthermore, the bulk of your application will be based on whether or not the pub will be able to fund the repayment of the mortgage.
Preparing your business plan
The aim of running a pub is of course to generate a healthy profit and lenders will want to see how you plan on achieving this. Having an in-depth business plan will give lenders an insight into how you plan on running your pub.
A business plan is required irrespective of whether you’re buying an existing pub or building one from scratch. That being said, it’s even more important when you’re buying a pub that’s not currently profitable. For instance, if you’re adding a restaurant to your pub, lenders will need to see how you plan on doing this.
Credit history and guarantees
Having a great credit score will make it easier when applying for pub finance. Nonetheless, it’s still possible to get approval even with poor credit, albeit more difficult.
Each case is assessed in its own way, as every pub business varies. Some lenders may ask you to provide personal security in the form of a property you own or savings that you may have. This is especially true if you’ve had problems with your credit in the past.
Even if your credit score is above average, offering to provide security can sometimes be enough to get the deal over the line. This is because it minimises the risk that lenders are taking in providing you with the loan you need. That being said, providing additional security greatly increases the risk placed on you, so it isn’t something to rush into.
Pub mortgage rates and fees
The mortgage rates and fees you’re offered will be based on the strength of your application. Nonetheless, interest rates for pub mortgages range between 3-8% per year. Having a good credit history, strong application, and a business plan will often result in more favourable rates.
Most lenders will require you to have a 30% deposit and will only offer a minimum of 70% LTV pub mortgages. Having a deposit higher than 30% can certainly help to unlock better deals. You’ll also find that larger deposits often provide access to more lenders.
Other fees that lenders charge can include arrangement fees. Arrangement fees will typically be between 1-2% of the loan amount. You may be charged more depending on the credibility of your application.
Can I remortgage a pub I already own?
Raising finance on a pub that you already own is possible. You may want to raise finance for a number of things, such as expansion or a refurbishment. You may even want to release equity so that you’re able to buy an additional pub. All of these situations are possible with the right level of equity and an already healthy business.
If your pub is performing below average, refinancing can become difficult. That being said, if you plan on reinvesting the capital into your business and have a solid plan of action, you may be approved.
In this scenario, you’ll almost always want to consult an advisor beforehand. This will enable us to assess whether your proposition is viable before you approach a lender.
Getting the help of a commercial mortgage advisor
As we’ve concluded, applying for a pub mortgage has many potential pitfalls. The best way to avoid these is by speaking to a specialist who has prior experience in this sector. Our commercial advisors have ample experience in this field and can guide you through the process from start to finish.
Each case will vary quite considerably and so will the rates and fees involved. Trying to get your mortgage approved along with finding the most competitive rate isn’t easy at the best of times. Furthermore, saving money on your mortgage can allow you to enjoy better profits from your business. You can make an enquiry to get started or give us a call to speak to an expert.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.