Finance: Trouble brewing

Brewer loans may look like the answer to all your problems, but if you're not careful the small print can trap you in debt, reports Phil...

Brewer loans may look like the answer to all your problems, but if you're not careful the small print can trap you in debt, reports Phil Mellows.

Brewer loans have for many years provided the financial fuel to freetrade pub businesses. Freehouse owners agree to sell a company's beer in return for a loan, either to buy the pub or to invest in developing the business. As banks and other financial institutions have increased their role in the freetrade, brewer loans are declining as a means of funding, but many publicans still find themselves locked into agreements while becoming increasingly in debt to their brewer.

It is one of those hidden problems in the pub industry, but a new firm is aiming to expose it and help licensees in trouble.

White Rose Business Services was set up earlier this year by people who had previously worked on the brewer's side of the fence - collecting payment on those loans.

John Bence estimates there is up to £450m in loans out there, ranging from deals for £5,000 to those in their millions. The shocking thing is that the major brewers may be collecting as much as £5m a year from licensees, not in repayments but in penalty charges.

"Brewer loans have diminished over the last few years, but a lot of licensees still turn to them because they are easier to get than a bank loan, the brewers are less stringent about the businesses they lend to," he says.

"There is a sting in the tail of these agreements and publicans don't realise until they start to fall behind with their payments."

The sting is the penalty charges that are incurred if the licensee defaults on payment.

"Brewers' loans operate in an unregulated financial market and do not have to comply with most of the legislation that apply to loans made by banks, building societies and other commercial lending organisations," explains John.

"Freetrade customers often find they are handcuffed to the brewer and face either paying the penalties or accepting they are locked in."

Freetraders may try to switch to another brewer for a more favourable deal, but if they have defaulted they are threatened with penalty charges - John is aware of one case with defaults going back six years.

Because licensees of small businesses are reluctant to take on the might of a big brewer they keep quiet about it, which John believes is hiding an industry problem that is much bigger than it appears.

White Rose's angle on this is that there are usually ways out of the trap. In the 10 cases it has taken up so far it has negotiated licensees an average £13,000 reduction in penalty charges.

"We will turn down a hopeless case, but so far we haven't come across one," says John. "Brewers will generally avoid going to court and when challenged they may offer you the option of suspending the charges and writing them off against future trade."

White Rose's advice to any freetrader facing penalty charges is firstly to have the figures checked by an independent body. It is possible you have overpaid in the past and may be able to get some money back.

Operating on a no-win no-fee basis, White Rose will first report on your situation and if there is a chance of saving you money it will recommend a settlement figure and act on your behalf in negotiations with the brewer.