Top Tips: Raising funds for your pub business

Take the banks, for instance. Despite being rescued by Government bailouts and quantitative easing, they are still reluctant to lend — particularly to small businesses, and especially to pub operators.

Even though lenders may see investment opportunities they feel confident about making a return on, the collapse a few years back has made them somewhat risk-averse. So, they sit on their cash.

For sound businesses that want to expand, this is proving hugely frustrating — but all is not lost. There are, in fact, a growing number of innovative ways in which funds are being secured by alternative means. And pub owners are starting to make the most of them.

Over the past couple of years several financial schemes have been launched. Here are some of the most successful examples:
Crowdcube​

Crowdcube is a website where companies can pitch a business idea to potential investors, who can put in any amount from £10 to £100,000. Since February 2011, it has raised £3.7m funding for 27 businesses.

Co-founder Luke Lang describes Crowdcube as an online version of Dragon’s Den. “Except rather than pitching to individuals, you’re pitching to a whole number of armchair dragons,” he explains.

“Our thinking is that instead of trying to raise £50,000 from one person it might be easier to raise £100 each from 500 different people,” suggests Lang. “It works well when the business is part of an established community — so pubs are a perfect scenario for this.”

In most cases, people invest in a start-up with growth potential. But Lang believes it can also be a way of safeguarding and developing something that’s of real importance to people — for example, a pub that needs a cash injection to take it to the next level.

The money is held in a ring-fenced account until the target is hit. Like Dragon’s Den, you have to get all the money you’re asking for, or you lose. Only if the target is reached does Crowdcube take a 5% commission, draw up legal documents and issue share certificates.
Funding Circle​

Open to limited businesses that have been trading for at least two years, Funding Circle was launched in August 2010 and has so far lent £37m to 850 businesses, including a “handful” of pubs.

“We’ve found a real appetite to fund small businesses,” says head of communications David de Koning. “They are good, healthy businesses, but the banks are not in a position to help them grow or they are taking too long to decide. It takes an average of just 12 days to raise money on Funding Circle.”

Following an initial application, businesses seeking funds are vetted to assess the risk to investors. If successful, the pitch goes online to some 800 potential angels who offer an amount they’re prepared to lend, from a minimum of £20, and bid an interest rate they’d like to earn. The rate is set at the lowest bid.

Funding Circle fully manages the entire process, including the interest payments to be made.

Angels Den​

A bit like a dating service, Angels Den is an international network that aims to match entrepreneurs to single investors. Each year, more than 5,000 business pitches are made to 4,500 wealthy individuals around the globe.

Many of them are made at SpeedFunding events, held regularly across the UK, at which 10 businesses are selected to deliver a short pitch to local investors face to face. At the end of the evening follow-up meetings are arranged.

Nine times out of 10 a hopeful entrepreneur will find at least one interested angel.
ThinCats​

ThinCats specialises in larger loans of between £50,000 and £3m, hosting online auctions in which investors bid interest rates.

Entrepreneurs are introduced through sponsors and finance brokers that vet and select good risks, and they pay a £450 listing fee before being put in front of 520 wealthy individuals. If successful, the sponsor takes a cut of the money loaned, plus a slice of the interest.

One business sponsor is Sterling Capital Reserve, which runs the Pubfunding website.

“It works exceptionally well, effectively lending money when banks are not,” says managing director David Griffiths. “There is loads of money out there. It’s just the quality deals that are lacking, and that’s what we try to put together.”

The Enterprise Investment Scheme​

For larger pub operators, the Government’s Enterprise Investment Scheme has played a vital part in funding growth.

Companies such as Castle Rock Brewery and Capital Pub Company have both benefited from the tempting tax advantages afforded by the scheme.

Among the latest businesses to make use of it is Brewhouse and Kitchen, a start-up led by former Scottish & Newcastle, Whitbread and Mitchells & Butlers man Simon Bunn.

“So far we have a number of individual investors signed up and we’re on course to open our first two sites, in the south-east, by the end of the year,” he says.

Others looking for funding should have “a compelling business plan”, Bunn advises.

“We have really been helped by having a test site at the Botanist in Kew, which we operate with Convivial London Pubs. It showcases what we are trying to do.”