Bank rolling big ideas

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The time has come to spruce up your pub for the unforgiving sunshine (hopefully!) of summer, but that’s all going to cost.
Mairi Clark looks at the different ways to get some financial help.

Money makes the world go round and that’s especially true in the pub business. With trading pressures limiting profit, many operators are looking to diversify their offering either by changing the look of their premises, offering something new like extending their food offering or perhaps even buying a new outlet. But all of that takes cash.
Unfortunately, banks are often reluctant to lend money to the licensed trade, unless of course you have a long-term relationship with a bank. So where can you go?
There are several routes that you can go down to get finance, which bypass the restrictions of the bigger banks.
Jim McLaughlin, who owns YesBar in Glasgow, obtained finance from DSL Business Finance when he launched YesBar – originally named as Vespbar – in 2011. He says, “When we launched I found that banks were very reluctant to lend to the licensed trade as it’s viewed as a ‘high risk’ sector. They also want security. With DSL it was all fairly straightforward, they looked at my previous experience, my projections and concept plan. Because I’d been in the business for so long, that went in my favour. I’d actually got funding in place before for other projects, but a friend had used DSL before and recommended them to me.”
DSL Business Finance works in partnership with the British Business Bank, and is a not-for-profit lender that is accredited by the Enterprise Finance Guarantee, which is a government-sponsored scheme open to small and medium-sized businesses that lack security for a regular loan. The company grew out of the Glasgow Regeneration Fund and expanded to cover the whole of Scotland in the last five years.
The company allows businesses to “buy” access to funds when the business/guarantors have insufficient security to secure the borrowing. While the government guarantees the loan for the lender, the borrower is still liable for 100% of the debt, which can be up to £1million. DSL will only release advances of £50,000 at any one time, but if the bulk of that advance is paid off, you can apply for another £50,000.  but only a maximum of £50,000 at any one time.
To apply for a DSL loan, operators need to provide 1 year’s worth of cash flow and projections, 2 years certified accounts, balance sheet and 3 months personal banking details. A fee is paid to the government, and is based on 2% of the loan balance.
Jim from Yesbar said of his experience, “When we took on the lease, the bar had been shut for nearly a year. We bought a lot of stuff off eBay and did the bar on a very small budget. We’re now turning over twice the projections that we stated in the business plan, which is obviously great.  I think when we did the projections, we were cautious with the turnover and over-estimated costs. One thing that was good is that you can take a break from repayments, if you’re finding business tough, but we’ve been very lucky in that we’ve never missed a payment. Our loan was for five years and I’m looking at paying the loan off in August.”
Another option for an unsecured loan, is to go with a company that recoups the money via a business’s PDQ card terminal. Liquid Finance is one company that has worked with licensees to help them raise to expand their businesses. The company works out an amount to ‘advance’ to an operator, based on historical card receipts. Generally it goes back 12 months to see how much is being taken by card, and following a one-off fee, the loan is paid back direct from the PDQ source. The percentage the company takes can be as low as 10% but generally it is around 20%.

Maxine Thompson of Liquid Finance, says its system works as an alternative to a structured, fixed loan. “Quite often people don’t get the response they want from banks, as many of them are reluctant to lend to the licensed trade, or demand security,” she says. “There is no set repayment period, as the business can take as long as it needs to pay back, but normally businesses take between 4-6 months.”
Liquid Finance also takes into account seasonal variations, so if it’s a quiet period for the business, obviously the repayments may go down. Maxine says, “We had quite a few clients who had their pubs ruined in the floods, so we were able to help them with that. We’re finding that the majority of our customers use their finance to carry out refurbishments such as making the pub look attractive, or refurbish their kitchens to offer a wider menu. It can even be something smaller such as a marketing push. When the smoking ban came in, we had a rush of people wanting money to refurbish their premises, mainly to get rid of the smell of smoke and the smoke staining.”
The difference with a financing scheme like this is that repayments are only made when the business is making money. “A lot of our clients like the fact that their finance is not a fixed expense,” says Maxine. “We work closely with the card companies and set up an account with them, so that when a card transaction takes place, we take the percentage at source. There’s no set period for repayment, so the more money an outlet takes, the quicker the advance is paid off. On average, most customers pay their advance back in between 4-6 months.”
Another route to go down for expanding a portfolio is to negotiate with a brewer such as Tennent Caledonian. Most recently, the company backed a loan to Michael and Tony Woods, owners of Glasgow’s Saint Luke’s. Its deal with the Woods saw it as key supplier of beer and cider as well as providing mobile bars to ease pressure at peak trading times.
“Since 2011 Tennent Caledonian Breweries has invested £40 million in the Scottish on trade – more than any Scottish bank or drinks supplier.” says John Gilligan, business development director at Tennents. “We believe there is a unique opportunity to support independent operators through on-going investment and our unique set of strengths make us a perfect investment partner for the on-trade. We are committed to developing funding solutions, which are sustainable and share value between supplier and operator. We can also support operators with proposals to banks to secure their backing as part of the overall funding package. Our key aim is to provide the investment required to enable operators to grow their business.”
One of the more maverick ways to raise funding – but proving the most popular – is crowdfunding. Brewdog is undoubtedly the poster child for crowdfunding in Scotland, having raised over £25million to fund its global expansion. But other businesses have used crowdfunding successfully for less ambitious projects. Simon Collier, a trained cocktail bartender who moved to Scotland in 2004, raised £20,000 through Equity CrowdFunding on BankToTheFuture.com to help him buy a closed-down pub in Thurso. His crowdfunding campaign saw local people and businesses donating money to launch his cocktail bar, Mr C’s, which opened in July last year. The bar opened with just tables and chairs but as his crowdfunding grew, he has been able to add designer stools, a pool table and wall-mounted flat screen TV.

A more recent campaign has been run by Bruce McGregor, a Scottish folk musician who launched a campaign through Squareknot.co.uk to open a craft beer bar in Inverness. Originally looking for £170,000 when he started the campaign Bruce has now found that he has been overfunded. His company, MacGregors Bars, is looking to open this summer and ran a pop-up bar in December. Bruce is looking to take over Ireland’s crown for country-themed bars by replacing them with Scottish themed bars showcasing craft beers, whisky and good Scottish food.
The main things with crowdfunding is to use social media as much as possible to get your pitch out to people. There is a huge array of crowdfunding sites available, but the most popular is Kickstarter.com. The best advice for doing a crowdfunding campaign is to know your audience, create a pitch that explains why your concept will succeed and create as much content to keep the pitch fresh. The majority of crowdfunding sites will update your funders as benchmarks are reached, and you can tailor updates to let them know of your progress. Kickstarter’s terms are that it takes 5% of the funding raised and you have to raise 100% of your target, or your donors will get their money refunded. There are others out there that will allow you to set a deadline and take whatever money has been donated. But all – apart from some charity and artists’ crowdfunding sites – will charge a percentage of the raised monies.
The beauty with all of these funding schemes means that despite the media saying everything is doom and gloom for pubs and bars, there is actually a lot of money out there for quality operators and budding bar owners. Let’s face it, crowdfunding could be the most exciting way to raise money, as it shows that people have faith in you which is great encouragement, and you have more control over what you do with the money. And if a couple of twenty four year olds can launch a company like Brewdog and seven years later be a global business with brands galore and nearly 50 bars worldwide, surely that could inspire you?