Sidney Phillips Business Mortgages

"We can help you finance any business you decide to buy not just those sold by Sidney Phillips"

For friendly help and guidance please call on 01834 849795

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Advice on Freehold Funding

In a question and answer format we cover most of the basic information you should require to understand the general lending criteria relating to freehold pub funding.

What is the maximum I can borrow against the purchase price?

Where pubs are sold as going concerns the purchase price includes the property, the fixtures, fittings and the goodwill of the business.

For suitably experienced applicants we can usually secure between 60% - 70% of the value of the business. This will be subject to satisfactory accounts. Some top up funding can be raised from brewery sources, if required.

Where additional freehold property is available as collateral security, then up to 100% can be loaned. This may apply where you wish to keep your home rather than sell it to raise your deposit. Once again the key here will be the financial strength of the business you are purchasing.

How long can the loan repayments be spread over?

The most common lending term is 15 years but in some instances up to 25 years can be considered.

Please note that it may be possible to arrange an interest only payment in the first year at least, to aid cash flow

What interest rate will typically apply?

Few lenders apply a standard set of rates to every transaction, instead account will be taken of the financial strength of the business under consideration and the relevant experience of the purchaser. The stronger the overall proposal, the more room we have to negotiate a lower rate.

Given current market conditions please call for up to date information on likely rates to apply to your proposal.

Can I have an interest only mortgage?

Unlike the residential and buy to let market interest only mortgages are not widely available in the commercial sector.

Do I need a business plan?

We will prepare cash flow, budget and profit & loss forecasts for you. The information we gather from you and the selling agents is submitted by us in such a detailed format to the Bank/Lending Sources that you do not usually have to prepare your own business plan. However it is strongly recommend for your own purposes that you carefully consider the financial forecasts we prepare for you and compile your own plan around the strengths, the weaknesses, the opportunities and the threats relating to the business. You should also consider a marketing plan, taking into account, local press advertising, creation of a web site etc.

What costs are involved in setting the loan up ?

We operate on the basis of complete transparency with regard to costs, with no hidden surprises. All costs will be outlined once an agreement in principle is received from the Bank/Lending source.

  • Typically you can expect a valuation fee which can vary from £500 + VAT to £1,500 + VAT depending on the type of valuation required, value of property, location etc.
  • The Bank/Lending source will usually add an arrangement fee of 1% to 1.95% of the amount you borrow to the loan, on completion
  • Often the Bank/Lending Source will appoint your own solicitors to act for them, saving you additional cost, however some lenders require separate legal representation. Again this cost will be detailed at the agreement in principle stage.
  • Land registry charges and other disbursements usually total around £400.00
  • We do charge fees for our services which will be confirmed to you once we have assessed your proposal.

What other costs can I expect in buying a freehold pub?

You need to be aware of the likely costs surrounding a freehold business purchase to ensure that enough funds are available for you to complete the purchase and to allow you to trade.

Principle costs include:

Legal fees

These costs can vary tremendously and you will be well advised to speak to at least two firms of solicitors to compare costs. For a recommendation on suitably experienced solicitors in the licensed trade, the selling agent may be able to offer local recommendations. Please note that in some cases your solicitors will also be asked to act for the lenders, in completing the mortgage documentation therefore they usually need to have at least two partners in the firm to gain Bank approval. Licensed conveyances are not usually acceptable.

Stamp Duty

At present stamp duty on commercial property is levied as follows:

  • Under £150,000 NIL
  • Up to £250,000 1%
  • Up to £500,000 3%
  • Over £500,000 4%

If VAT is charged on the sale then we understand stamp duty is also charged on the VAT element. Care should be taken to ensure this does not push the total sale price into a higher band.

Important: We understand that stamp duty should only be levied on the property value only and not charged on either the goodwill of the business or the fixtures and fittings. This is however subject to interpretation and you should discuss this with your solicitor.

Stock at valuation

On the day of completion you will instruct a stock taker to value the wet & dry stock as well as the glassware. By agreement the stock levels may be run down for the day of the completion of the sale.

Can I settle the loan early or make lump sum reductions?

The majority of mortgage offers we negotiate can be settled or part paid without penalty. If settlement penalties are to apply these will be advised to you at the agreement in principle stage.

When we refer to an agreement in principle it will be a document prepared by a recognised lender, outlining the terms and conditions under which they will consider lending. It will already have been submitted to the bank/lending source’s underwriters and therefore as long as any conditions contained in the agreement are met, the loan can be considered as approved.

Can I bridge the sale of my house to buy now?

Where sufficient equity is available and where sufficient income is being generated to service the mortgage on the new business, any existing mortgage and the short term loan then we may be able to arrange short term funding to allow you to complete the purchase before the sale of your house is completed. This is becoming more challenging so please call to discuss this further.

I want to keep my home as an investment and raise capital against it can you help?

Yes, this can be done by arranging a buy to let mortgage. The amount raised will be governed not only by the value of the property but by the assessment of the likely rental income.

Do I need to be experienced in the Licensed Trade?

Ideally you will have had some experience in the trade and you will have or will be obtaining your personal licence. For information on this go to DCMS or type “personal licence” into GOOGLE

When considering any proposal the lender is looking at three main aspects of the deal; the security it will hold, the ability to repay the borrowing requested and the suitability of the applicants. If the security and the repayment ability are strong then this will often compensate for lack of experience. However if we are pushing the maximums in terms of the amount of borrowing and/or the business needs to be improved to meet the borrowing and drawing requirements, then the focus will turn on the applicant.

What if the accounts for the business are poor?

All lenders are looking for clear evidence of the business' ability to repay borrowing, meet costs and drawing requirements. Only in exceotional circumstances at present will they lend without accounts and this is typically for expereicned applicants only, where high levels of deposit are available (40% -50%) and where outside income will be maintained. Please call us to discuss.

What next?

If you are at an early stage of looking for a business you should contact us to establish what you can afford given the capital/assets available to you. This will save you time and money viewing businesses which you cannot afford.

We have a brief personal financial profile form which can be completed, which will provide us with the necessary personal information to give you the most appropriate advice.

Only once you have viewed a business will accounts be made available to you. We can arrange for these to be forwarded, through the appropriate selling agents. We will provide you with an assessment and if necessary an explanation of these figures to help decide whether this business is suitable for you. Please note that if there are no accounts available or if for good reason they are not a reflection on the true potential of the business, then this does not necessarily prevent the business being funded.

If you wish to move forward with the purchase of this business, we will be pleased to advise you on making an offer, which should be submitted through the offices of the selling agent. This will be considered and if accepted will usually be conditional on you being able to prove you have the funding to complete the purchase. This proof, in part will come from you, either in the form of evidence of cash held on deposit or your solicitors confirmation with regard to the position of your house sale. The evidence of the balance of funds which will be raised by a mortgage, will be supplied by us, initially as an agreement in principle from a recognised lender followed by a formal offer of funding once the valuation has been completed.

To obtain the agreement in principle to lend we need to prepare a sound business proposal clearly outlining what you require to borrow, the terms you need to borrow on, and detailing your plans and aspirations for the business.

To achieve this we have developed a strong business document which by taking C.V. information from you, background information on the pub you are buying, considering your plans and ideas for the future, assessing the accounting information and preparing detailed financial forecasts, provides the lender with all the information they need to agree your mortgage.

The time scale for obtaining an agreement in principle from a lender is usually 4-5 working days. The valuation process can take 5 -10 working days, depending on the type of valuation required by the lending institution, following which formal loan documentation can be issued.

Once the formal loan documentation has been accepted by you, the time scale to completion is governed by the speed of your and the seller’s solicitors, in completing the legal formalities.

For any mortgage application we need the following:

  • A completed personal financial profile for you
  • C.V. information on all connected parties to the purchase
  • A copy of the selling agent’s property details (we can obtain)
  • Copies of all available accounting information (we can obtain)
  • A brief summary (verbal or written) of what you plan to do with the business.

For friendly help and guidance
please call on 01834 849795

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Looking to buy another type of business?

See our partner site Business Mortgage Solutions for help and guidance on funding for all commercial and retail businesses.

Business Mortgage Solutions T/A Sidney Phillips Business Mortgages, is authorised and regulated by the Financial Conduct Authority. Our Firm Reference number is 734594. Not all types of business we undertake is authorised and regulated by the Financial Conduct Authority. Business Mortgage Solutions is a credit broker not a lender. Registered with the ICO, registration number Z5836978

Established 1986 - Terms & Conditions

The National Association of Commercial Finance Brokers

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