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How to raise finance for a pub

Joshua Ejdelbaum explains the five main areas that lenders look at when assessing applications.

The pub is a British institution. With more than 50,000 still trading across the UK there is no doubting its importance as a focal point in the local community.

However, raising finance can be one of the biggest challenges for publicans and would-be publicans alike.

Whether you want to raise finance for a pub you already own or want to purchase licensed premises, it’s important to understand that lenders do not have set products which they pluck off the shelves.

When it comes to commercial finance, they will consider all aspects of each individual application when deciding whether or not they can support the proposal, how much finance they are able to provide, and the terms on which they will provide it.

So what factors do you need to consider when looking for pub finance? What are the main considerations for lenders when processing an application?

We’ve highlighted the five main areas for you below:

1. Ability to repay

This one goes without saying. If you are going to borrow finance for a pub, or indeed for any other business, any lender needs to be assured that you can afford to pay them back the interest each month (and capital if the loan is on a repayment basis).

The main way that lenders judge this is from the accounts of the pub itself. So as a general rule, it is easier to get finance for a pub with a high turnover and healthy profit than one which only has wet sales and is making a loss.

Does this mean you cannot get finance if the pub has no accounts? Not necessarily, but it would make it harder for any lender to sign off on an application for finance.

2. Security

Lenders prefer providing finance for a freehold pub rather than a leasehold pub, simply because they have security in the property’s value. Some lenders will consider other forms of security as well, which can only enhance any application for finance.

3. Background and experience

When it comes to arranging finance for pubs, having relevant experience is important. The pub industry can be challenging, and therefore lenders take a positive view if an applicant has managed or worked in a pub environment before.

It simply provides lenders with the confidence that the applicant knows the industry and what it takes to run a successful pub. Even experience in similar industries – such as hotels or restaurants – can result in beneficial terms being provided.

4. Level of investment

One of the key questions any lender will ask is how much the borrower is putting in to the transaction themselves. Pretty much any lender will want to see that the borrower is invested in the project and able to inject his or her own capital into the deal.

This could either be in the form of a cash contribution towards any purchase or, if the borrower already runs a pub, evidence that they have invested into the business already. The exact amount lenders are willing to provide and how much of a contribution they require will vary from case to case, but no lender is ever willing to take on all the risk themselves.

5. The lender

Finally, the lender itself is important. Different lenders have different appetites for different sectors, and these appetites are changing all the time.

Therefore it is important, if you are looking for pub finance, to speak to the right lender: one with the right appetite for the finance you are looking for. There is no point speaking to lenders who aren’t currently interested in providing pub finance; focus your efforts on those which are.

And as increased regulation and red tape can make dealing with some lenders a potential minefield, it is particularly important to identify the most respected lenders in your industry.

As you can see, there are many different factors which lenders consider when ascertaining the level of finance they can provide to aspiring and current publicans and the above list is only the tip of the iceberg.

Remember that they consider each case on its own merits, so the stronger your application is on these points, the greater your chance of securing the finance you need.

ASC Finance for Business are independent commercial finance brokers with more than 45 years’ experience in raising finance for small-business owners and entrepreneurs, from pubs to guesthouses to investment properties. For more information, or to speak to your local ASC Director, visit the ASC Finance for Business website

Joshua Ejdelbaum

About the author

ASC Finance for Business are independent commercial finance brokers with more than 45 years’ experience in raising finance for small-business owners and entrepreneurs, from pubs to guesthouses to investment properties. For more information, visit the ASC Finance for Business website.

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