Need funding for a pub? Ask your friends

Presenting a solid business plan or clubbing together with friends can prove the best way to finance buying a pub.

That's the view of agents and brokers as major high-street banks appear reluctant to lend to pubs and other hospitality businesses.

The Bank of England has released a survey stating that lending to the commercial property sector has reduced significantly since the last quarter. In addition, licensees have told the MA in recent months that well-known banks are telling them they won't lend to pubs as they see the sector as too risky.

"Banks are overexposed to commercial property. There is only £2bn of lending to the sector compared to £36bn before. Loan to value used to be 80:20, and now it's 60:40," said Andrew Watt, head of licensed leisure at Colliers CRE.

"More people are turning to 'private banking'," said Watt. "By this I mean friends and families, communities and networks of business people."

Watt advises potential licensees to have, "a first-class business plan, speak to a known broker, get a good valuation from someone used to dealing with licensed property and know the bank's decision-making policy — often a letter in principle doesn't guarantee a loan".

Paul Thompson, partner at Acorn Commercial Finance, said banks will look at whether the accounts show the business can repay a loan, whether the person has a proven track record in running a business, and how it will get its money back if it all goes wrong.

"All banks have a negative attitude to the licensed trade. We need to present a watertight case. There are signs that lending is improving, albeit very slightly."

Robin Mence, managing director of Sidney Philips, advises "getting your house sold first".

He added that the percentages banks are lending are more conservative, and people don't have equity for the balance since residential sales aren't happening.

"Banks also aren't as keen to use equity release or other security, as properties have declined by at least 25% in value, which affects equity levels by a much greater proportion."