Archives May 2024

Get capital from family & friends

A good place for an early-stage business to start might be to ask any friends or family members if they are willing to invest in your company or loan you a lump sum. A loan might be easier to set up as all you need to do is agree to repay it over a set term, with interest added on top. Interest rates can be significantly lower than if you borrowed from a bank or another lender, and it can be a quicker process too.

Alternatively, if you go down the investment route, your friends or family would hold a stake in your company. This means you wouldn’t need to repay them anything as your investors would only get money if your company becomes profitable. On the flipside, if your business is not successful, your investors could lose money.

Whichever option you choose, it’s crucial to draw up an official written agreement so that there are no misunderstandings. If you go for the investment option, it’s important to highlight the risks, while if you’re borrowing through a loan, you need to state what happens if you can’t make your repayments. 

Seek private investors

Private investors are individuals who are willing to invest their own money into your business. In return they usually receive shares in the company and can have a say in how its run. 

There are two main types of private investors – angel investors and venture capitalists.

Angel investors, or business angels, are high net worth individuals who have the money to invest into a business. They usually prefer to invest in startups and early stage businesses.  However, they will need to be confident of your business’ success, so you will need to have a solid business plan and be able to show that your business has high growth potential. 

Read more: our guide on finding angel investors.

Angel investors are usually experienced entrepreneurs which means that as well as offering funding, they can also offer their own skills, expertise and contacts which can be invaluable to a new business. 

Venture capitalists, on the other hand, don’t invest their own money, but that of investors. They do this by setting up a fund that is used for others to buy shares in the company. Although they can help startups, they usually invest in businesses that are already established and are looking to expand or launch a new product or service. 

Venture capitalists usually invest larger sums compared to angel investors – a few million in some cases. The return on investment is typically much higher too. 

Read more: our guide on finding VC funding.

Contact similar businesses or schools in your field

If you know people in a similar line of business to yours, it can be worth contacting them to see if they know of anyone who might be interested in investing in your company. 

Be aware, however, that this can be quite a drawn out process, as you might need to contact several people or even attend industry-related events to network and expand your pool of potential investors.  

Another option is to look at schools offering diplomas or degrees in your area of work. Some of the professors who teach there might be willing to put you in touch with some of the guests they invite to speak on certain subjects. If they can set up an introduction for you, this could be another opportunity for investment.

Look to crowdfunding

Crowdfunding is another potential option to explore. It enables businesses to collect money from a number of people (‘the crowd’) via online platforms. There are several different types of crowdfunding platforms, as outlined below:

Reward-based crowdfunding

With this type of crowdfunding, investors are asked for relatively small sums of money and in return, they receive a reward. This is often a product or service offered by the business. For example, if your business makes clothing, everyone who invests a certain amount might receive a branded t-shirt. Rewards could also include exclusive invitations to events. 

Donation-based crowdfunding

In this case, any money given is not expected back. Donations are usually for relatively small amounts and the money generated is usually for a project. For example, it might be to give to families who have experienced a loss or a community that needs medical support. 

GoFundMe is an example of a donation-based crowdfunding platform, where the family of a person diagnosed with cancer, for example, might start a campaign to raise money for specialised treatment. 

Debt-based crowdfunding

Debt-based crowdfunding is also known as peer-to-peer lending. Here, you receive money in the form of a loan from a large number of private investors, which could be individuals or businesses. 

Peer-to-peer lending matches those with money to lend with those who want to borrow. Because it removes the need for financial institutions such as banks, interest rates tend to be better for borrowers, while investors generally earn a higher return than they would through a regular savings account.

Equity crowdfunding

With equity crowdfunding, investors usually receive shares in the company in return for their investment. This means they receive a share of the profits if the company performs well. Investment sums tend to be in the thousands but it can be a riskier option as there is no guarantee on return.

If you’ve decided to fulfil your dream of running a pub or simply fancy a career change, you’ll likely need to borrow funds to help cover the cost of setting up your business.

This blog explains all you need to know about financing a pub.

What is pub finance?

Pub finance is an umbrella term that covers the different financial solutions often needed to get your pub business up and running. Pub finance can be used to cover dips in cash flow, pay for inventory, renovate an existing premises or buy a new one.

In some cases, funds could be transferred to your bank account within a few hours. Repayment terms depend on the type of finance you’ve applied for. Unsecured pub loans, for example, need to be repaid over one to seven years, while pub mortgages can be repaid over a period of up to 30 years.

What is a pub mortgage?

A pub mortgage is a type of commercial mortgage that’s used to buy or refinance a pub, nightclub or bar.

Pub mortgages are similar to regular commercial mortgages in that you borrow a lump sum to repay over many years. But lenders will generally have specifications about what type of business they are prepared to lend to, which means pub mortgages can be harder to qualify for.

You’ll need a pub mortgage if you want to buy the pub premises outright so that you have complete control of the business. This differs from leasing a pub, where you still run the business, but lease the premises from a leaseholder – often a brewery.

How do pub mortgages work?

As with all mortgages, a pub mortgage must be secured against your property, or even multiple properties. You repay the amount borrowed in regular instalments over a term of between five and 30 years. Repayments are usually monthly, but some lenders will let you pay weekly or quarterly. Interest rates can be fixed or variable.

Pub mortgages can be on an interest-only or capital repayment basis.

• If you choose an interest-only mortgage, you’ll only need to repay the interest, resulting in lower monthly repayments. But at the end of the term, you’ll need to pay off the original amount borrowed, so you’ll need a suitable repayment plan in place.
• With a capital repayment mortgage, you pay off a portion of the capital, plus interest, each month. At the end of the term, there will be nothing left to repay, and you’ll own the property outright.

Who can apply for a pub mortgage?

You can apply for a pub mortgage whether you’re an individual, a partnership, a limited liability partnership or a limited company. You must be at least 18 years old.

You might apply for a pub mortgage to buy a new property or refinance an existing one.

Am I eligible for a pub mortgage?

Pub mortgage applications will be individually assessed. Whether you’re eligible will depend on several factors, including:

• Your affordability: Lenders will want to see that you can comfortably afford your repayments. To do this, they will examine your trading history and accounts. They will also look at existing levels of debt.
• Your business plan: A robust business plan that outlines projected earnings and a budget for costs will work to your advantage. This is particularly important if you don’t have a trading history.
• Your business credit history. A good credit score means you’re more likely to be accepted and secure competitive interest rates.
• Your experience: Many lenders will be looking for at least two to three years’ experience in the hospitality sector, ideally running a pub or another business. If you’ve never run your own business and have no experience in the hospitality industry, you may struggle to get accepted for a pub mortgage.
• Whether you have the necessary licences: At a minimum, you’ll need to have a personal licence and premises licence.
• Your deposit size: You’ll need a deposit of 30% to 45% to qualify for a pub mortgage.

In addition, some lenders will look at the pub’s previous trading accounts, and the pub’s location may also be considered.

How long does an application take?

Pub mortgage applications can usually be completed within six to 12 weeks. However, this will depend on whether you have the necessary details and documents to hand, as well as the complexity of your situation.

How much does a pub mortgage cost?

Pub mortgage interest rates can range from 3% to 7% per year. But this will depend on:

• The size of your deposit: The less you borrow, the less you’ll usually be charged
• Your credit history: A higher credit score generally means a lower interest rate
• Your trading history: A business in good financial health is more likely to secure a better rate.

Interest rates can be fixed or variable. If you choose a fixed-rate pub mortgage, the rate will remain the same for the term of the deal, usually two to five years. This means your monthly repayments will also be stable.

If you choose a variable rate deal, the mortgage rate and your monthly repayments could go up or down.

Where can I get a pub mortgage?

You may be able to find a pub mortgage with any of the following lenders:

• High street banks: Mortgage rates can be more competitive with high street banks. You’ll usually need to speak to a specialist in the commercial lending team who has experience with pub mortgages.
• Challenger banks: A few challenger banks offer pub mortgages. These banks tend to have more flexible lending criteria, so their mortgages are often easier to get accepted for. But this also means you’ll pay a higher interest rate.
• Specialist online lenders: A mortgage with a specialist lender can be the most flexible option as they often accept applicants with poor credit or weaker trading accounts. Again, interest rates will be higher and you may need a larger deposit.

Can I get a pub mortgage with no deposit?

It might be possible to get a pub mortgage without a deposit. But you’d need another form of security, such as the equity in another property you own, to qualify. It’s best to discuss your situation with a mortgage broker who will be able to tell you which lenders are more likely to accept an application with no deposit.

What is a pub loan?

A pub loan enables you to borrow a sum of cash from a lender. You repay this sum, plus interest, in monthly instalments over a set term. Terms are generally shorter than pub mortgages, although this depends on the lender and whether the loan is unsecured or secured.

Unsecured loans, which don’t require collateral, are usually repaid over one to seven years. Secured loans have longer repayment terms.

What can I use my pub loan for?

Pub loans can be used for a variety of purposes, such as:

• Buying inventory
• Hiring staff
• Renovating your premises
• Outdoor maintenance, such as garden landscaping
• Buying a vehicle for the business
• Paying for kitchen equipment
• Marketing and advertising costs

How much can I borrow for a pub?

This will depend on the type of loan you apply for and the lender. Unsecured pub loans might let you borrow from £1,000 to £500,000. Secured loans typically let you borrow upwards of £250,000.

The amount you can borrow will also depend on your credit rating and affordability, as well as your business’s financial health. The stronger these are, the more you can borrow.

What do I need for a pub loan application?

When applying for a pub loan, most lenders will want to see the following:

• Three to six months’ worth of bank statements
• Tax returns for at least the past two years
• A cashflow forecast
• Your exit strategy to show how you will pay back the loan
• Proof of identity and address

If it’s a secured loan, you’ll also need to provide details of the security you’re offering.

You must be at least 18 years old and have a UK-registered business. Some lenders will ask that you’ve been trading in the UK for a minimum period – often around three months. However, lender criteria will vary, so check carefully.

How can I apply for pub and bar loans?

You can usually apply for a pub loan directly with the lender or you can apply through a broker.

A broker can assess your financial situation and help you find lenders that are more likely to accept your application and offer the most competitive interest rates. A broker can also offer support when completing your application, making it a much smoother and less stressful process.

Here at Swoop, we can help you find the right pub loan for you. Even if you’ve been turned down elsewhere, it may still be possible to secure the funds you need. Register with Swoop to get started.

What are the benefits of pub business loans?

One of the biggest benefits of pub business loans is that they can be quick and easy to set up. You might have the funds in your account in just a few hours.

As mentioned, pub loans can be used for a range of purposes, giving you the flexibility to spend the cash as you see fit. Monthly repayments are often fixed, making it easier to budget and interest rates can be low. What’s more, if you make your repayments on time, you’ll steadily improve your business credit score. This can boost your chances of getting access to more credit in the future.

What are the typical interest rates on pub finance?

Pub finance interest rates typically start from around 3.5%. You’re more likely to qualify for lower interest rates if you have a good trading history, excellent credit, and your business is financially robust.

Higher rates will usually apply if the lender views your business as a higher risk. This might include businesses with a poor credit score or a limited trading history.

Get started with Swoop

Our team at Swoop would be happy to discuss your requirements with you to help you find the right pub finance deal and support your application. Begin with the best deal to give your project the best start possible. Apply now.

Open Banking has changed the way UK businesses and individuals can use and grow their money. Fast, efficient and more innovative than traditional financial systems, Open Banking puts the customer firmly in control. But what exactly is Open Banking, how does it work and what can it do for you? Read on to find out all you need to know about this financial revolution. 

What is Open Banking?

Open Banking has existed in the UK since 2018. It authorises the high street banks to let you electronically share your financial data with other, third-party financial providers. Your permission gives these entities ‘read only’ access to your banking data, such as transactions, payments and available balances, allowing you to obtain financial services and conduct transactions without the faff of visiting your bank. With Open Banking, you don’t need to fill out lengthy forms to provide third-party apps or websites with the data they need. Once you’ve given permission through your bank’s mobile or online banking, these services can access the necessary information directly. 

Examples of open banking

Open banking is used by many thousands of businesses and millions of individuals in the UK every day and for literally hundreds of different uses. Here are four examples of Open Banking in action:

• Business and personal finance management has been positively changed by Open Banking. Data aggregation enables companies to access and combine customer bank account data, such as savings balances, to provide tailored support with money management and actionable insights.
  
• Proof of income is crucial for many private and business transactions, including lending or renting residential or commercial property. Open banking changes this with instant income verification—there’s no need for payslips, bank statements, or tax returns.
  
• Affordability checks are important for lenders in both consumer and business lending. But judging a borrower’s real financial position can be challenging with limited financial data. Open banking allows lenders to analyse up to two years of financial records to achieve an accurate affordability profile.
  
• Online payments do away with the need for paper documents. However, in the business world, paper invoices are still very common, and they’re a major reason why so many small businesses are struggling with late payments. Open banking can eliminate the time lag when it is embedded into the checkout and payment flow of a business’ accounts receivable. Automatic bank to bank payments are triggered on agreed timelines, producing a fast and frictionless experience.

How does Open Banking work?

Firstly, no person or business has to use Open Banking. It’s your choice. You have to opt-in to Open Banking, not opt-out. Secondly, every third-party financial provider must ask for your consent to access your data when you sign up to their services. Thirdly, your bank can only share the portions of your data that you want it to – such as available balances but not recent transactions. You can also withdraw your permission from any provider at any time, and they must renew your permission every 90 days. If you don’t renew, access to your data automatically expires.

As for the technology, without going down a technical rabbit hole, banks share your information securely via technology called an Application Programming Interface (API). APIs act as tech translators, allowing the different systems and platforms of various providers to ‘talk’ to each other in the same  language and seamlessly pass along the information you’ve agreed to share. You’ve almost certainly experienced this kind of technology before with popular platforms or apps such as Google, Uber or Deliveroo. For example, Deliveroo might use Google Maps’ API so it can work out where you are and where their delivery driver is to tell you when you can expect your take-away meal to arrive.

How is Open Banking different from traditional banking?

There are significant differences between Open Banking and traditional banking:

How is Open Banking regulated?

The rules regarding Open Banking are strict and designed to protect customer privacy and financial data. These rules have existed across Europe since 2007. In the UK, Open Banking is regulated by the Financial Conduct Authority (FCA). Only companies that are authorised by the FCA can use Open Banking technology (APIs) to access financial information or initiate payments on behalf of a customer. Penalties for misuse of Open Banking systems and data can be severe.

Is Open Banking safe?

Yes. As long as they’re authorised, providers can only access the data that’s needed for the service you’ve signed up to. For example, if you’re an SME seeking a business loan and you’ve asked a comparison marketplace to look at your business’ current account, it can’t also look at a commercial mortgage you have with the same bank unless you give your express permission.

Additionally, all third-party financial providers have to comply with data protection rules. This includes GDPR. The provider must tell you exactly which data it will use, how long for and what it’ll do with it before you sign up. If you’re not sure about anything, make sure you ask the provider what data they want and what they are using it for before you give access. If something doesn’t feel right, don’t share your data with that provider.

Open Banking benefits:

Open Banking has major benefits for both businesses and consumers:

Benefits of Open Banking for businesses

• Enables businesses to access their customers’ financial data (with their consent), allowing them to offer better and more personalised products and services.
• Allows businesses to automate and streamline their financial processes, such as accounting and compliance. This saves time and cuts costs, which can improve efficiency and productivity.
• Helps businesses tap into new sources of financing, which can increase their revenue.
• Helps businesses to detect and prevent fraud. This improves the customer experience.
• Can help organisations to capture more sales (especially online and consumer-facing businesses, where slow payment systems often lead to customers leaving unpurchased items in their basket).

Benefits of Open Banking for consumers

• Enables customers to share their financial data with third party providers. This allows access to a wider range of tailored products and services than they may receive from traditional banking
• Allows instant payments without the need for credit or debit cards
• Helps customers save money on loans and mortgages – provides instant comparisons
• Improves financial inclusion by providing access to financial services to underserved populations
• Helps prevent financial fraud by giving customers more control over their data and who can access it

Open banking challenges:

Not everything is perfect in the world of Open Banking. Still a relatively new innovation, Open Banking has yet to address these important disadvantages: 

• Security fears: By design, Open Banking gives third-party financial services providers access to customers’ confidential data. As a result, many business and personal customers remain worried about security breaches that could occur because of increased sharing. This is mainly driven by customers’ lack of understanding as to how Open Banking works, but it has nevertheless created a wariness among some customers that is proving difficult  to eliminate.  

• It removes the interpersonal relationship with the customer: Because everything is handled digitally, old-style, face-to-face encounters between the customer and their bank are getting fewer and fewer. This can lead to a breakdown in the relationship and brand loyalty between customer and provider and it is also giving the banks reason to close thousands of branches across the UK, which can disproportionately impact older and less technically savvy customers.

Find out more with Swoop

Open Banking can give businesses fast access to a range of financial services and products – loans, mortgages, investments, leasing and more. Swoop is at the forefront of this new financial freedom. Our mission is to provide UK SMEs with the best and most cost effective financing options when they need it and with the minimum of fuss. Call us today to find out how your business can benefit from the biggest change in business financing since money was invented.