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Three reasons to use a commercial mortgage to buy a pub

Three Reasons to Use a Commercial Mortgage to Buy a Pub

Finance specialist Rangewell explains why commercial mortgages often represent the most affordable, effective way to secure a pub – especially when it comes to freeholds

Running a pub as a tenant or leaseholder is where most people start in the pub trade, but many soon start to think about buying a freehold.

Around a third of UK pubs are ‘freehouses’, as freehold pubs are called. Being an independent business with no brewery tie or pub company (pubco) dictating how to run things can bring some exciting opportunities.

Even if running a restaurant or letting rooms are not part of your plans, simply being able to run your pub as you want means you have more control in other ways too – as well as more of the profits.

1. A commercial mortgage could help you buy a more profitable business

Of course, buying a freehouse requires a greater investment than a leasehold because you’re buying a property as well as the business.

According to agents specialising in pub sales, freehold pubs are often sold at twice the pub’s actual turnover, so raising finance can be difficult and time-consuming. Some freeholders have found that the best funding solution is a commercial mortgage.

2. A commercial mortgage could be easy to arrange

A commercial mortgage is similar to a homeowner’s mortgage, but is secured on business property. It can provide the funding to buy a hotel, either as a building or an operational business, in which case the purchase price includes the property, fixtures, fittings and the goodwill of the business.

Most lenders will consider loans for between 60-70% of the value of the business, although it may be possible to advance more if you have other property, such as your home, to use as collateral security.

A business finance specialist could make that easy to arrange.

3. A commercial mortgage could be very affordable

Unlike homeowner mortgages, commercial mortgages do not have standard rates of interest. A lending manager will look at each application to assess risk and set the rate accordingly.

They will want to see the books of the business you want to buy and probably your own trading figures.

Lenders take the property you are buying as security for the loan, which is typically 70% of the property value, and ask for a cash deposit for the balance of the purchase price.

A couple holidaying in a coastal town in Norfolk fell in love with the area – and with a pub that had seen better days.

“The location was good with plenty of tourist business, but the owners were getting on and felt they should be taking things a little easier,” said Joe Berry. “We saw the potential and felt it was the perfect place to make a home as well as a business.”

Joe and Jean had been tenants in the past and knew the work involved. “We would have to do a fair amount of work to turn the place round,” Joe explained.

“But the main obstacle was buying the freehold. The Norfolk coast is not as cheap as many people imagine.”

The couple used our online funding finder to raise some cash. Having experience in the industry and being able to put down a large deposit, they borrowed £220,000 on a 15-year commercial mortgage.

You can see what the service could do for you by using the online form below. It covers all types of business funding, helping you to find the most appropriate type of loan and the most competitive rates.

Richard Mitchell

About the author

Richard is one of the members of the Rangewell content team. Richard has worked with international banks as well as fintech business, and now researches and writes all types of content for financial and business readers

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