Advancing on plastic

Pub licensees, along with every other taxpayer in the UK, are now shareholders in the country's leading banks, thanks to the government's recent multi-billion pound cash injection for these beleaguered institutions.

Yet these same banks, now flush with public money - yours and mine - appear somewhat loathe to lend to that other beleaguered institution, the British pub, struggling to survive in some of the direst trading and economic circumstances some operators have ever seen.

This reluctance has led cash-strapped licensees to seek alternative methods of raising much-needed funds.

Some have hit on what appears a safe and seemingly risk-free way of freeing up cash in their business, namely securing an advance against credit and debit card receipts for sales of food and drink in their pubs.

There are a few players in this relatively new market, but the company claiming to back the charge to persuade licensees to get on board is Merchant Cash Express (MCE), based in Mortlake, South West London.

It currently has in excess of 100 pubs on its books, but while relatively new to the sector, MCE has been helping a range of small businesses for some time.

MCE director Richard Morley explains how it works. "What we offer is an advance based on the predicted level of credit and debit card turnover a pub has coming through on a monthly basis."

Morley says the company advances pubs anywhere between £3,500 and £60,000, although the "sweet spot" is somewhere between £15,000 and £35,000.

And how does MCE make its money? "We take an agreed percentage of a pub's monthly 'plastic' takings," says Morley, "until the principal is repaid, along with our fee."

The amount repaid to MCE each month depends on how much the pub makes, says Morley. "Anyone can have a bad month, so when they do, so do we. If they go bust, well, we're an unsecured creditor."

MCE is backed by a large US company, Rapid Advance, which bought MCE earlier this year, which is itself financed by Goldman Sachs, the large US investment bank. With all the shenanigans on Wall Street is Rapid itself safe? Morley declines to comment on what its financial resources are, but comments that there are "more than sufficient [funds] at our disposal".

Why are vehicles such as these proving popular? Certainly reluctance on the part of banks to lend is one reason, believes Morley. "They are nervous of the sector," he says.

The current financial climate is certainly stormy, and leased pubs have little to attract a nervous lender. As one MCE licensee client, who prefers to remain anonymous, says: "My business is heavily seasonal, and I tend to lose in the winter and win in the summer. But with two bad summers I needed some respite."

However, "banks won't accept tied leases as security", says the licensee. "But just under half of my takings are card based and it's a figure that's increasing," he adds. "And if we go bust, [MCE] don't come after us."

Morley acknowledges the risk profile is heavily weighted towards his company, but he hasn't had one pub client go belly up yet.

"We've systems in place and when we look at prospective clients we get it right most of the time."

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The cost of borrowing

MCE's fees work out at between 33 and 36 per cent of the amount advanced. One MCE licensee client ThePublican.com​ spoke to said he thought this "expensive", but the same licensee said it was a relatively straightforward way to ease his business through a tight period.

To qualify for an MCE advance, pubs have to have a good trading track record; a credit/debt card turnover in excess of £3,500 a month; have been in business for at least 12 months, and have been audited via MCE's referral process.

Pubs successfully applying for an advance have to go over to card terminals provided by MCE's partner, LloydsTSBCardnet.

Applications for advances go to MCE's underwriters, and according to Morley there's a 70 per cent-plus approval rate. "We also have 80 per cent renewal rates," he adds, suggesting most existing clients keep coming back for more.

It seems the only risk is on MCE's side. "As I say, these advances are unsecured," Morley says. "But we have procedures. We don't just take all comers and hope for the best."