We were approached a longstanding client, the director of a trading limited company which runs a couple of successful, leasehold pubs in a large Kent town.
The client was looking for finance to purchase a third pub in the same town and wanted help from us to find a suitable lender and put together a cohesive proposal.
The pub the client was looking to acquire had not been trading for two years after the previous tenants had failed to keep up with the high rent the freeholder had been charging. It also required a comprehensive refit before trading could recommence.
To ensure the pub stood the best chance of being profitable the client had negotiated a free-of-tie lease with the freeholder, which meant he would not be restricted to purchasing stock from just one brewery.
In total, the client needed £105,000 to purchase the lease and carry out the refurbishment works. He had £40,000 cash from the business and was looking for a loan of £65,000.
Knowing the client well, we thought that his existing business bank might be the best lender to approach, although there were three specific challenges we would have to address:
1. Very few lenders are willing to lend against start-ups in the public house sector. Although this had been a successful pub at one point, it had been closed for two years
2. The client does not own his own home or any other property freehold, so lenders are unable to take additional security in the form of a second charge
3. We needed to get the lender to understand the profit that could be generated from a free-of-tie leasehold interest.
We approached the branch lending manager with a loan proposal which included solutions to the challenges:
1. The client could demonstrate solid experience of running successful pubs in the same town supported by a strong set of business accounts
2. We helped the client qualify for finance under the Enterprise Finance Guarantee - a government-backed scheme that helps viable UK businesses who are turned down for a loan due to inadequate security. This scheme works by providing accredited lenders with a Government-backed guarantee of 75% of the loan value.
3. The client already owns two leasehold pubs – one free-of-tie and one tied – and was able to provide a profit comparison between the two in support of his application.
Challenges resolved, the lender agreed the following terms without charging an arrangement fee on the understanding the client maintained his business banking with them.
We charged a broker fee of 2% of the loan amount for our work in putting the deal together and successfully negotiating the following terms:
Loan amount: £65,000
Rate: 3.75% term tracker (Bank Rate, 0.5% currently + 3.25%)
Term: 10 years capital and interest
Lender arrangement fee: Nil
Mortgage payment: £542 pcm
Consultant: Andy Elley, 01732 471644