Business Financing for Pubs and Restaurants in the UK

No one ever said running a pub or restaurant was easy, but now more than ever business owners in the hospitality sector need a helping hand. Fortunately, there are affordable, practical financing solutions that provide just this. Here’s what you need to know:  

What types of pubs and restaurants can get business financing in the UK?

There are over 90,000 licensed food and drink premises across the UK, and pretty much all will be able to get business financing of some type. This includes cafes, restaurants, bars, pubs, catering businesses, mobile food businesses and fast food businesses. The only must is that the business seeking financing is based in the UK and registered as a for-profit business

Beyond this, providers of business financing may have other requirements, usually relating to the business’s financial situation, but as these requirements are set out by each lender individually, there are variations. This may mean that searching for business financing is a little trickier than if all lenders were standardized, but it also means that there exist financing options for businesses in all manner of situations, of all sizes, and with all manner of financial need.

What can pubs and restaurants in the UK use business financing for?

Almost any pub or restaurant can get financing of one kind or another, but what can it be used for? Almost anything; most forms of business financing do not put restrictions on how borrowed funds can be used. This means that you can use business financing for:

How does business financing for pubs and restaurants in the UK work?

You might be wondering how your business can access some of this versatile, helpful funding. For the most part, business financing follows a few basic steps:

  1. A business identifies the need for financing
  2. The business applies for financing
  3. The business’s request for financing is either approved or declined
  4. If approved, the business receives a lump sum to use as needed
  5. The business repays the borrowed funds, plus interest and/or other costs, over time

While this may sound quite simple, there are some nuances within the business financing sector that are important to understand. So far we’ve used “business financing” as a blanket term to describe any form of financial assistance provided to a pub or restaurant business. But there are actually many different types of financing; there are also many different types of financing providers, and many companies within each type of provider. So when considering business financing, you have to make three choices, and doing so isn’t always easy. There’s context for each of these choices below.

What types of business financing can pubs and restaurants in the UK get?

The first decision a business needs to make when considering business financing is the type of financing to apply for. The options include:

Each of these types have different borrowing amounts, different costs, different applicant requirements, and in some cases different uses. So to pick the right type of financing for your business, you need to understand all of these options, and crucially, you need to thoroughly understand what your business needs, including:

Knowing the answers to these questions will help you to sift through the many types of business financing to select the one that best suits your financial needs. 

Here’s a quick breakdown of the financing types listed above:

Traditional business loans

Traditional business loans are the most common form of financing for businesses in the UK; they are usually available from high street banks and other major lenders, and can be for anything from £5,000 to £750,000 (if unsecured), or upwards of £1 million (if secured). They are set up as installment loans, with the entire loan amount released at the start of the agreement and then repaid over time. Interest rates start at 4% APR for secured loans, or 7% APR for unsecured loans. Terms can be anything from one month to seven years. 

Most lenders require applicants to have a business credit score of at least 640, and a minimum of two years of operational history. It is also normal for these loans to require a thorough business plan showing intended use of the funds and projected revenue. As such, these loans are some of the hardest to qualify for, and loan applications usually take several weeks to process. They can however offer some of the lowest interest rates on the market.

Business lines of credit

A business line of credit is a type of open-ended, revolving credit facility that allows a business to borrow money as and when it needs to. No lump sum is released at the start of the agreement; instead, the lender approves the borrower for a credit facility up to a certain amount. This amount is based on the business’s financial situation, and can range from £1,000 to £250,000. 

Once approved, the borrower can access any amount of money it needs to via this facility, whenever it needs to. Interest is only charged on what’s borrowed, and the interest rate charged depends on the borrower; it usually ranges from about 9% APR to 25% APR. Borrowed funds must be repaid, plus this interest, but when they are, the available credit amount resets – so the facility is reusable, time and again. As with traditional loans, lenders rely on a business’s financials and credit history for approval. Applications also take some time to be processed, usually between five days and several weeks. A variety of lenders offer business lines of credit, including high street banks and challenger banks, but also online companies. Lines of credit offer a high degree of flexibility, but can become expensive.

Business credit cards

Working much like a line of credit, but with a physical card instead of via direct bank deposit, business credit cards can have limits as low as £1,000, or as high as £250,000. As with regular credit cards, the interest rates are quite steep: most business credit cards charge between 15% APR and 30% APR. Many have annual fees too, but many also have perks and benefits specifically tailored for business owners. 

Most businesses qualify for a business credit card of one kind or another, but the credit limit depends heavily on the business’s financial situation, and the perks and costs of each card vary widely. Business credit cards are available from banks, digital providers and credit card companies. They can be extremely useful to have in hand in case of unexpected expenses, but are one of the most expensive forms of borrowing. 

Commercial mortgages

Commercial mortgages use the piece of property being financed as collateral, and so can have very low interest rates, starting from just 4%. Borrowing amounts can be very large too, up to £20 million, with terms as long as 25 years. But, as with traditional business loans, qualifying for a commercial mortgage can be tough. Credit score, business history, expected revenue and other financial markers will all be taken into account, both in loan approval and in borrowing limit and interest rate. Similarly, applications can take some time to process, and a deposit is necessary – usually of at least 10%. However, for businesses looking for the large sums of money necessary to secure a property purchase, commercial mortgages are by far the most cost-effective route. Commercial mortgages are available from major banks as well as mortgage companies and through mortgage brokers. 

Equipment financing

Equipment financing can be sourced from a variety of lenders, including some equipment manufacturers and dealers – meaning that it is often possible to access financing for the equipment as it is being purchased. Borrowing amounts from £1,000 are available, with loan terms ranging from three to ten years. Interest rates run from 6% to 15% APR on average. Loans can usually be sourced quite quickly, especially if pursued through the lender associated with the equipment seller, and are secured against the equipment in question. For those seeking financing specifically to furnish their business with equipment, this can be a practical and affordable option, but it’s important to bear in mind the useful life of the equipment versus the loan term. 

Online loans

Online loans come in many shapes and sizes; most are set up as installment loans, but there are other options, including online equipment loans, online vehicle loans and online lines of credit. Online lenders have more flexibility and are more nimble than larger, brick-and-mortar lenders, meaning they can have less stringent qualification criteria and faster approvals. Borrowing amounts range from a few thousand to £750,000, with interest rates starting from 7% APR for an unsecured loan. Terms can be anything from three months to seven years.

Good credit and a long operating history will secure you a better interest rate and higher borrowing amount, but aren’t always necessary – online loans are available to businesses with all different financial profiles. All of this makes online loans useful to a wide range of borrowers, including those unable to qualify for a traditional business loan and those needing cash faster than their high street bank can offer.

Merchant cash advances

Merchant cash advances (MCAs) aren’t actually loans – they’re advances. As such, they don’t charge an interest rate, and there isn’t a fixed loan term. They also don’t require any collateral. Instead what happens is this: the business receiving the MCA gets a lump sum, which they can use however they wish. Then, every time the business receives income from a credit or debit card sale, a small percentage is deducted and rerouted to the lender, to repay the advance. This happens with each card sale, until the whole amount is repaid. 

Borrowing amounts range from £3,000 to £300,000, with the approved amount depending on the business’s expected income. The cost to borrow the funds is set at the beginning of the agreement, and does not change regardless of how long it takes to pay the funds back. Repayments only happen when sales go through, so the rate of repayment depends on sales volume. In this way, MCAs adapt to changing business income and so offer a flexible repayment method for those with unstable cash flow, and are especially useful for businesses with a high volume of card sales. Given that 62% of customers use their debit or credit card to pay for small food purchases, such as coffee, and 88% of customers use their card to pay for eating out, it’s clear why many restaurants and pubs choose MCAs when looking for flexible financing. You can find out more about the ins and outs of MCAs here.

Private investment

Private investment is a catch-all term that describes a range of non-commercial financing options, including:

Private investment is a wildcard; lending could come in any form, be of any size, and have almost any requirements or costs. It can be a useful solution in certain circumstances, but it usually comes at the cost of business equity, and can be hard to find.

Government loans

The UK government has a few national (e.g. the Growth Guarantee Scheme) and many local funding programs aimed at helping small businesses in a variety of ways; some of these programs are structured as loans, and some as grants. Costs and funding amounts vary, as do terms. You can find out if your business is eligible for any government-backed funding and the relevant details by searching here.

Who provides pub and restaurant business financing in the UK?

All providers of business financing in the UK fall into one of the following categories:

As discussed above, some lenders only work with certain borrowers, so you must find the best choice for your business’s financial position. To do this, you need to know:

This data will inform which types of lenders are likely to agree to work with you. You can combine this with the knowledge of which type of financing you want to create a shortlist of lenders that offer what you need and are likely to give it to you.

Which is the best lender in the UK for pub and restaurant financing?

Once you know the type of financing you want and the type of lender best positioned to serve you, you still face a choice: which individual lender to apply to. There may be dozens of possible companies, and you need to select just one. You can find the best lender for your specific needs and circumstances by comparing two vital factors:

  1. Financing terms, including:
    1. Type of borrowing costs (e.g. interest rate (fixed or variable) or factor rate)
    2. Loan fees, including set-up, late payment, early payment, administrative, etc.
    3. Length of borrowing contract
    4. Overall borrowing cost
    5. Available borrowing amounts
    6. Repayment frequency
    7. Any other conditions or terms for the financing
  2. Lender services and reputability, including:
    1. Length of time in business
    2. Past customer reviews
    3. Availability of customer service
    4. Transparency and accountability
    5. Application processes and approvals speed

The aim is to find a company with an excellent reputation offering business financing at competitive terms; by looking at the metrics listed above, you should be able to select a financial partner and product that will not only help your business in the short term, but that will protect its long term financial health too.

How does a pub or restaurant apply for business financing in the UK?

The hardest part of applying for pub or restaurant financing is choosing the financial product and lender to apply to; once you’ve done this, everything else is relatively easy! Most providers of business financing have streamlined application processes, often offered entirely online, so that businesses can easily apply whenever is convenient for them. But before you open your chosen lender’s application form, you need to gather your supporting documentation. 

Almost all financing applications require some business paperwork, but not all applications have the same requirements. You may need any of the following:

Once you have these items in hand, all you need to do to apply for business financing is complete an application form with your chosen lender, and submit it with whichever of the documents listed above they ask for.

What challenges are pubs and restaurants in the UK facing?

The UK pub and restaurant sector is worth an estimated £23.7bn and accounts for a sizeable chunk of GDP, but its importance to the UK’s economy doesn’t mean the industry is immune to large-scale challenges. Businesses are currently facing battles on multiple fronts, all of which threaten short-term profitability and long-term viability; these issues include: 

Inflation

While the general rate of inflation in the UK has fallen over the last year, service industry and food inflation remain high. This means that restaurants, pubs, cafes and other eateries are all facing much higher food costs than pre-Covid, and these costs are still rising. This doesn’t only pose a threat to current operational budgets, it also sows uncertainty for future budgeting.

Staffing

51% of restaurant operators say staffing is a significant challenge; turnover is at an all-time high (75%), and estimates suggest that it can cost £2,000 just to hire and train a new member of staff. A new manager can cost as much as £15,000. Finding and retaining competent staff is a necessity for any business to remain viable, but many lack the extra cash to do so.

Consumer Spending 

The cost of living crisis means that consumers are increasingly choosing to stay at home rather than eat out. 78% of UK consumers find dining out too expensive to do regularly, and 77% of restaurant and pub operators reported a decrease in guests in the past two years. This issue, plus the higher costs mentioned above, leads to significant cash flow concerns for many.

Sustainability

39% of consumers in the UK have chosen brands with more environmentally sustainable values in the past 12 months, and 70% want restaurants to operate more sustainably. The move to sustainability is inevitable for many, but the cost to do so is not trivial. Replacing equipment, inventory, suppliers, systems and processes with new models and methodologies takes time and money, and smaller businesses in particular are struggling to meet this demand while fighting cost and income pressures.

Technology

The technological revolution in the food service industry was turbo-charged during Covid, and consumers now expect a certain level of accessibility and technology from their restaurants and pubs. Here are some stats to illustrate this:

In addition, patrons have indicated they are more likely to use a restaurant’s own website than placing an order with a third-party site. So businesses – of all sizes – are expected to have the online presence, back-end technology, customer-facing technology, and systems in place to facilitate a secure, user-friendly, hands-free experience. This requires physical hardware, appropriate software, and staff training, all of which takes investment capital.

Competition

Lastly, restaurants and eateries are facing intense competition. The number of food service businesses in the UK is projected to grow significantly, and an increasing number are using new marketing and advertising methodologies to attract customers. 67% of restaurants plan to pay for social media ads in the next year. The push to stay visible and relevant in an increasingly crowded marketplace requires a significant marketing budget and technical savvy, as well as the right staff. But again, this requires investment and room in operational budgets on an ongoing basis.

If your restaurant or pub is facing any of the challenges named above and needs financing, an MCA from Swiftfund could be the answer. Talk to one of our experts to find out what we can do for your business. 

Quick fire questions

How much does business financing for a pub or restaurant in the UK cost?

That depends on the type of financing and its terms; interest rates on unsecured installment business loans currently range from 7% to 15%; interest rates on other types of loans can be anywhere from 4% to 50%+. There may also be loan fees or other costs.

How much can a pub or restaurant borrow with business financing in the UK?

Anywhere from £1,000 to £750,000+, depending on the borrower, the lender and the type of financing chosen.

How quickly can I get business financing for my pub or restaurant?

The provider you apply to will dictate this; some offer business financing within 1-2 days of application, while others may take weeks. Look for those that offer quick approval if it’s urgent.

What happens if I default on my restaurant’s business loan?

Defaulting on a business loan may lead to legal action, seizure of assets, and damage to your business’s credit. A default will also severely impact your business’s ability to obtain financing in the future.

Can I get business financing for my business if it’s not owned freehold?

Yes, but certain types of secured loan may be impacted if you do not own the physical premises for your business freehold.

Do I need a business plan to get pub or restaurant financing?

Maybe – it depends what type of financing you apply to. Larger loans and traditional bank loans do require a business plan, but other forms of financing, such as merchant cash advances, don’t.

What if my restaurant is declined financing?

Don’t panic – you still have options. Businesses can be declined funding for a number of reasons, and being rejected does not mean that no financing options exist for you. Plenty of lenders work with businesses who have been rejected elsewhere. To find one that’ll work with you, you need to understand why your business was rejected, and then find lenders who have more flexible eligibility criteria in this regard.

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