WhatsApp Icon

A Guide to Business Loans for Pubs

Looking to take your pub to the next level with staff training, renovations, or upgrading your bar coolers and pumps?

We understand that these investments are crucial to enhancing your pub’s atmosphere and success. At Smart Funding Solutions, we’re here to provide the extra cash you need to turn your vision into reality.

Your pub’s unique ambiance, carefully crafted bar menu, and exceptional front-of-house staff define its identity and allure. As a discerning pub owner, you deserve a loan company that truly comprehends your aspirations and the essence of your business.

We offer pub finance made simple. With our tailored pub business loans, financing your growth becomes simple, transparent, and accessible. We pride ourselves on offering flexible and affordable repayments that align with your pub’s cash flow dynamics.

The Pub Industry in the UK

Despite the decline in the number of pubs since 2001, there’s a silver lining to the situation. National statistics reveal a shift in people’s drinking habits, presenting numerous positive prospects for pub owners. Based on these industry statistics, opting for a pub loan in 2023 emerges as a wise and promising choice.

The number of pubs in the UK has been declining steadily over the years. Between 2000 and 2020, it is estimated that the UK lost around 25% of its pubs, with various factors like changing consumer habits, high operating costs, and increased competition playing a role in the decline.

Many traditional pubs have faced closures, particularly in urban areas and smaller communities. Rising business rates, changing consumer preferences, and economic challenges have contributed to these closures.

On the topic of pub ownership, the pub industry in the UK is a mix of independent, small-chain, and large-chain pubs. While some independent and small-chain pubs have thrived by offering unique experiences, larger chains often benefit from economies of scale.

One positive trend has been the rise of craft beer and gastropubs. These establishments have gained popularity for offering high-quality, locally brewed beers and elevated dining experiences, attracting a more diverse clientele.

Pubs play a significant role in the UK economy, providing employment, supporting local communities, and contributing to the hospitality and tourism sectors, and if you own one, a pub loan may be ideal for you and your business.

people cheering with pint glasses

What can pub loans be used for?

Pub loans are intended for individuals and businesses operating in the pub industry. Whether you are a pub owner seeking to expand, renovate, or upgrade your establishment, or an aspiring entrepreneur planning to open a new pub, these loans are specifically tailored to meet the financial needs of the pub sector.

Pub loans can be utilised for various purposes, including:

  1. Opening new pub locations or acquiring existing ones.
  2. Renovating and improving the pub’s interior and exterior.
  3. Upgrading pub equipment, such as bar coolers, taps, and kitchen appliances.
  4. Investing in staff training and development to enhance service quality.
  5. Initiating marketing and promotional efforts to attract more customers.
  6. Managing working capital and addressing cash flow requirements during peak and slow periods.

No matter the type of pub establishment, be it traditional or modern, gastropub, or craft beer bar, pub loans offer the financial support needed to achieve business goals and foster growth within the competitive hospitality industry.

There are several funding options available for pubs in the UK. These options can help pub owners secure the necessary capital to start, expand, or improve their businesses. Here are some of the common funding options:

Bank loans

Bank loans for pubs are a traditional form of financing that pub owners can obtain from banks or financial institutions. These loans provide a lump sum of money that can be used to start a new pub, expand an existing one, renovate the premises, purchase equipment, or meet other business needs. Bank loans for pubs come with specific terms and conditions, and understanding how they work is crucial before considering this financing option.

Bank Loans for Pubs

  1. Loan Application: To apply for a bank loan, the pub owner must approach a bank and submit a loan application. The application process typically involves providing detailed information about the pub’s financials, business plan, credit history, collateral (if applicable), and the purpose for which the funds will be used.
  2. Loan Approval: The bank evaluates the pub owner’s creditworthiness, business performance, and the proposed use of funds to determine loan eligibility. The approval process may vary depending on the bank’s policies and the loan amount requested.
  3. Loan Amount and Terms: If approved, the bank will offer the pub owner a loan amount based on the assessed risk and the pub’s ability to repay the loan. The loan terms will include the loan amount, interest rate (fixed or variable), repayment period (term length), and any applicable fees.
  4. Collateral and Guarantees: In some cases, banks may require collateral to secure the loan, such as property or assets owned by the pub owner. Additionally, a personal guarantee from the pub owner may be needed, especially for small businesses or startups.
  5. Repayment: Pub owners repay bank loans through regular instalments, usually monthly, over the agreed-upon term. Each instalment includes both the principal amount borrowed and the interest accrued.
  6. Interest Rates: The interest rate on bank loans can be fixed or variable. Fixed rates remain constant throughout the loan term, while variable rates may fluctuate based on market conditions.

Pros of Bank Loans for Pubs

  • Lower interest rates: Bank loans generally offer lower interest rates compared to other forms of financing, such as merchant cash advances or credit card loans.
  • Flexible use of funds: Pub owners can use the loan for various business purposes, including expansion, renovation, equipment purchase, and working capital.
  • Improved credit score: Timely loan repayments can help establish or improve the pub’s credit score.

Cons of Bank Loans for Pubs:

  • Stringent eligibility criteria: Banks often have strict requirements for loan approval, including good credit history, a well-established business, and collateral.
  • Longer approval process: Compared to alternative financing options, the approval process for bank loans may take longer, delaying access to funds.
  • Personal liability: If the loan requires a personal guarantee, the pub owner’s personal assets may be at risk in case of loan default.

Before applying for a bank loan, pub owners should carefully assess their financial needs, compare different loan offers, and consider the repayment terms to ensure that the loan aligns with their business objectives and cash flow capabilities. Seeking advice from a financial advisor can also be beneficial in making an informed decision.

waiter pouring a beer

Merchant cash advance

A Merchant Cash Advance (MCA) is a financing option that may be available to pubs and other businesses in the UK. It is not a traditional loan but rather a form of financing where a lender provides an upfront cash advance in exchange for a percentage of the pub’s future credit and debit card sales.

How a Merchant Cash Advance typically works for pubs:

  1. Application: The pub owner applies for a Merchant Cash Advance with a lender. The application process is usually faster and more straightforward compared to traditional loans, and the pub’s credit score may carry less weight in the approval decision.
  2. Approval and Terms: If approved, the lender determines the amount of the cash advance and the percentage of future card sales that the pub will pay back to the lender. This percentage is often referred to as the “retrieval rate” or “holdback rate.”
  3. Funding: Once the terms are agreed upon, the lender provides the pub with a lump sum of cash upfront. This money can be used for various purposes, such as renovations, equipment purchases, marketing, or other business needs.
  4. Repayment: The repayment process is tied directly to the pub’s card sales. Instead of fixed monthly payments, a portion of each day’s card sales is automatically withheld by the payment processor and sent to the lender as repayment. This continues until the agreed-upon amount, plus fees, is fully repaid.

Pros of Merchant Cash Advance for Pubs:

  • Quick access to funds: The application and approval process is usually faster compared to traditional loans, providing quick access to much-needed capital.
  • Flexible repayment: Repayments are based on a percentage of daily card sales, so the amount paid fluctuates with the pub’s revenue. During slower periods, the repayment amount is reduced, easing cash flow constraints.

Cons of Merchant Cash Advance for Pubs:

  • Higher cost: MCAs often have higher fees and costs compared to traditional loans, making them a more expensive financing option.
  • Sales-based repayment: The percentage of card sales taken as repayment might impact the pub’s cash flow, particularly during periods of slow sales.
  • Not suitable for all pubs: MCAs are best suited for pubs with a significant portion of revenue generated through card transactions.

Before considering a Merchant Cash Advance, it’s essential for pub owners to thoroughly review the terms and costs, compare it with other funding options, and assess whether it aligns with their business needs and financial situation. As with any financial decision, seeking advice from a financial professional is recommended to make an informed choice.

Asset finance

Asset finance is a popular financing option for pubs and other businesses that require specific equipment or assets to operate effectively. It allows pub owners to acquire essential assets, such as commercial kitchen equipment, bar furniture, refrigeration units, and other machinery, without needing to pay the full cost upfront.

Here’s an explanation of asset finance for pubs:

  1. Types of Asset Finance: There are two common types of asset finance used in the pub industry:
  2. Hire Purchase (HP): In a hire purchase agreement, the pub owner pays an initial deposit (usually around 10-20% of the asset’s value) and then makes regular fixed monthly payments over an agreed-upon period (typically 1 to 5 years). Once all payments are completed, ownership of the asset is transferred to the pub owner.
  3. Finance Lease: In a finance lease, the lender purchases the asset and then leases it to the pub owner (lessee) for an agreed-upon term. The pub owner pays fixed monthly lease payments throughout the lease period. At the end of the lease term, the pub owner can typically choose to either return the asset, renew the lease, or purchase the asset at its residual value.

Asset finance is generally available for a wide range of pub-related equipment and assets, including but not limited to kitchen appliances, bar fittings, seating, refrigeration units, and entertainment systems.

Advantages of Asset Finance:

  1. Preservation of Working Capital: Asset finance allows pub owners to spread the cost of acquiring assets over time, preserving their working capital for other business expenses.
  2. Improved Cash Flow: Regular fixed payments make budgeting more predictable and help to manage cash flow effectively.
  3. Up-to-date Equipment: Pub owners can keep their pub equipped with modern and efficient assets by upgrading or replacing leased equipment at the end of the lease term.
  4. Tax Benefits: Depending on local tax laws, lease payments may be tax-deductible as a business expense.

Disadvantages of Asset Finance:

  1. Total Cost: Over the term of the finance, the total cost of acquiring the asset may be higher than paying for it outright.
  2. Ownership Delay: With a finance lease, ownership of the asset is delayed until the end of the lease term or when a final balloon payment is made.

When considering asset finance for pubs, it’s essential for pub owners to carefully review the terms, interest rates, and fees associated with the agreement. It’s also recommended to compare asset finance offers from different lenders to find the best fit for their specific pub business needs. As with any financial decision, seeking advice from a financial professional can help make an informed choice.

bottles of alcohol in a pub

Franchise Finance

Franchise operations have become a significant business venture in the UK, with many pubs, bars, and clubs being part of established franchise groups. Joining a pub franchise provides access to a recognised brand, marketing support, reliable suppliers, and the convenience of acquiring essential items like interior fittings and kitchen equipment. However, the cost of entering a pub franchise can be substantial, starting at £25,000 and potentially increasing with additional startup expenses.

In some cases, pub franchisors may offer franchise funding options to cover both startup and ongoing operational costs. However, if this option isn’t available, franchisees (potential pub owners like you) usually seek financing through a combination of the pub loans mentioned above. For instance, asset finance loans can be used to purchase expensive equipment, while a term loan could cover the franchise joining fee. To complement this, a cash flow loan, such as a merchant cash advance, might be sought once the pub is up and running.

By blending various types of financing, prospective pub franchisees can access the capital they need to establish a successful and thriving business under the umbrella of a well-known brand. However, careful consideration and financial planning are vital to ensure the pub’s financial health and long-term success.

Franchise finance can offer several advantages for pub owners looking to join a well-established franchise group. However, there are also potential drawbacks that should be carefully considered. Here are the pros and cons of franchise finance for pubs:

Pros of Franchise Finance for Pubs:

  1. Established Brand and Support: Joining a franchise provides access to a recognised brand with an established reputation. This can attract customers and boost the pub’s credibility, especially for new businesses.
  2. Marketing Support: Franchisors often offer marketing support and promotional materials, helping pub owners with advertising and attracting a broader customer base.
  3. Supplier Streams: Franchises typically have established relationships with suppliers, allowing pub owners to benefit from bulk purchasing discounts and reliable product delivery.
  4. Ease of Setup: Franchises provide standardised business models, guidelines, and training, making it easier for pub owners to set up and operate their businesses.
  5. Access to Equipment and Interiors: Franchise finance may cover essential items like interior fittings and kitchen equipment, saving pub owners from the burden of large upfront costs.
  6. Shared Best Practices: Franchise networks facilitate the sharing of best practices among franchisees, allowing pub owners to learn from each other’s successes and challenges.

Cons of Franchise Finance for Pubs:

  1. High Initial Investment: The cost of buying into a franchise can be substantial, with initial entry fees ranging from thousands to hundreds of thousands of pounds.
  2. Ongoing Royalties: Franchisees typically pay ongoing royalties or a percentage of their revenue to the franchisor. This ongoing cost can impact profitability.
  3. Limited Autonomy: Joining a franchise means adhering to standardised procedures and guidelines set by the franchisor, potentially limiting the pub owner’s autonomy in decision-making.
  4. Contractual Obligations: Franchise agreements come with contractual obligations and terms, which may be restrictive and may affect the pub owner’s ability to make changes or exit the franchise.
  5. Market Saturation: In some areas, franchise networks may have a high concentration of pubs from the same brand, leading to increased competition and potentially affecting individual pub performance.
  6. Franchisor Dependence: The success of the pub business may be somewhat reliant on the overall success and management of the franchisor. Changes or issues at the corporate level could impact individual franchise operations.

Overall, franchise finance can be an excellent option for pub owners who value the benefits of a recognised brand, support, and access to supplier networks. However, it’s essential to thoroughly research and assess the specific franchise opportunity, understand the financial implications, and consider the long-term goals and compatibility with the franchisor’s vision before making a commitment. Seeking advice from financial professionals or franchise consultants can also be helpful in making an informed decision.

pints on a table

Do you qualify for a pub business loan?

Whether you’re seeking an expansion loan, financing for renovations, or a quick cash injection to cover cash flow downtime, we have assisted numerous pub owners like you in obtaining the necessary finance for growth.

As a bar or pub landlord, you understand the challenges and rewards that come with the industry. However, not being able to secure financing when you need it can significantly impact your pub business. That’s why we provide pub loans, bar loans, and the innovative merchant cash advance product to support business owners like you.

Pub Business Loans from Smart Funding Solutions

If you are a pub owner who is looking for a boost to your finances, then why not speak to the team at Smart Funding Solutions.

We will assess your situation and help you find the ideal loan for you.

Why not apply now and have your funds within 48 hours? Or, if you have further questions, get in touch to speak with a member of our team.


Leave a Comment

Your email address will not be published. Required fields are marked *