Finding funds
The Publican looks at how to find the cash to improve your pub.
After the struggle of finding the right pub, getting funding in place to buy it and then cutting through all the red tape to get the business up and running, it probably won't be long before you start thinking about ways to improve your venue.
This could be anything from a complete overhaul to an extension or simply new furniture, sound systems, catering equipment or carpets. If you are lucky enough to have the money to fund this then great but many licensees keen to invest in their pub find they do not have the finance to make the alterations they want.
While publicans can simply approach their bank or existing lender for additional finance there are other options. If you are a tenant you can apply to your pub company for some funding, although you will generally be required to contribute something as well. This will mean that your pub company will want to recoup some of its investment and will increase your rent.
Operators can also get short-term finance to help fund these new purchases. Although this will mean paying a high rate of interest it could mean that you can build up your profits, giving you a safety net, rather than ploughing it straight back into the business.
Option one: Your pub company
If you are a tenant with a pub company or brewer you can apply to them for funding. Virtually all tenanted pub companies will have a pot of money earmarked for refurbishments and new projects within its estate. With the lack of available freeholds on the market many companies are holding on to their pubs and are looking at ways to improve their existing estates.
Union Pub Company, the 1,140-strong pub company, makes major investments in about 50 pubs a year, with smaller tactical investments being made in up to 100 of its pubs.
These investments can be anything up to a strategic input of £50,000, which can dramatically alter the business, while £20,000 can address a specific consumer demand such as upgrading the toilets or introducing an outside drinking area.
Remember - it involves you as licensee making sure you put across a strong case to ensure you can get your hands on some of the money.
As with any business proposition, you still need to make sure that you carry out all the necessary research to ensure that you have looked at every possible aspect of your business plan and the details of what sort of increase in profits you expect.
For example, if you want to add on a conservatory or restaurant you will have to provide some evidence that there is a demand for it and that it will improve the turnover and profit of the business.
Option two: Broker
Paul Thompson, partner in broker Acorn Commercial Finance, says there are two main options for any licensee looking for this sort of finance.
If a licensee is looking for a large pot of money for a major refurbishment they should look at increasing their existing mortgage or remortgaging. "That way they are likely to get a better interest rate," said Paul.
For smaller investments, up to £5,000, remortgaging is a costly option.
Instead, Paul advises asset finance, in which you eventually buy equipment or products, or hire purchase where you lease the items.
Although the interest rates can be between 10 and 15 per cent, the advantage is that the deal is not underwritten against your pub.
- Go to www.acorn-commercial-finance.co.uk
Option three: Independent finance company
Armada Finance is a specialist in the pub sector. The company funds almost any size of scheme ranging from small amounts of £500 for fixtures and fittings up to £300,000 to fund the development of additional rooms, a conservatory or the installation of a new kitchen.
The company takes on clients often in start-up situations and funds their annual refit or upgrade of equipment year on year. It operates on a system where instead of handing over the money to the licensee they get suppliers to invoice them direct. Repayments can be made over periods of six months to three years - using short-term financial leases which allow licensees to pay off the debt at a rate that suits them, as Armada Finance director Tony Hodges explains.
"The traditional way is that a licensee pays for goods by cash and this can put pressure on their cash flow. Our clients they know what the costs are when they enter an agreement. This way makes it easier than using bank facilities. Clients who would have paid for these goods can instead use working capital."
The way the financing works is that if a licensee has a 12-month deal to buy some equipment they will pay a deposit, 11 months rent and a one per cent final payment to secure ownership of the items. Repayments are then structured to suit the licensee's budget.
- Go to www.armada-finance.co.uk
Financial advice from The Publican:
- Make sure you can afford the repayments on any agreement
- Shop around and see what is on offer
- Get a business plan organised or make sure that the investment is really needed in your property
- Be certain you need the investment to drive the business.
Pictured l-r: Don and Helen Feasey with Tony Hodges of Armada Finance. The couple purchased the lease on Manor House Inn at Croyde, Devon, and have transformed the building through a continual programme of refurbishment using finance from Armada. They have modernised the bar, increased the capacity of the restaurant and built a conservatory with disabled facilities.
