Beginners Guide to Commercial Finance

Financial Ups and Downs

Starting a great business always begins with a great idea, enthusiasm and a whole heap of motivation but at some point the focus has to turn to how you will go about financing the operation. There are so many commercial lenders, brokers and bankers out there that this particular area can be the most daunting for budding hospitality operators.

The world of finance is so daunting in fact that here at BARventure we've teamed up with Paul Thompson from Acorn - the leisure purchase and finance experts - to give some insider guidance to help you on your way.

Acorn, like BARventure, are completely independant which means the advice you get is honest and impartial and unlike some other brokers and lenders on the market they don't charge you a fee to sit down and talk with them.

The biggest thing to look out for when searching for commercial finance is a reputable broker. There are a number of brokers (and lenders) out there (including big names) who are big on promises and short on delivery - so remember if it sounds too good to be true, it probably is! We would only ever recommend using a company that is a member of the National Association of Commercial Finance Brokers, (www.nacfb.org.uk), this is the nearest thing to a governing body and is voluntary so meeting their standards of entry shows a real committment on the part of the broker. It ensures that you get what you pay for and should the worst come to the worst there is a recognised complaints procedure.

Before making your first telephone call its a good idea to get some information ready - because you're going to be asked a fair few questions. Jot down the experience you've had to date; have you worked in hospitality before? Been bar staff, a manager or even an owner. List all the associated courses you've taken and don't forget about transferable skills from other jobs you've held. First aid courses, SIA (Security Industry Association) lIcence, personal licence, BIIPBP (British Institute of Inkeeping Profitable Business Portfolio). What assets do you hold? Cash, houses, investments and any third party help that might be available (backing from friends and family etc.)

You should also be completely upfront about your credit background. There's no point hiding CCJ's, missed loan or mortgage repayments or bankruptcies. These things wont neccessarily end a deal but trying to explain them at a later date can make everyone involved a little nervous. Its situations like this that a good broker, like Acorn, is worth its weight in gold as they can often talk through a deal with a lender who would otherwise have refused, helping to explain the specific circumstances of the situation and driving through a great deal on your behalf.

Of course all Brokers are in business to make money too and at some point its going to cost you for their services but please avoid companies that want you to pay a registration fee before you've even spoken to them. Acorn charge a particularly low 'appraisal' fee of £250 but this only comes in to play once you've met with them, discussed exactly what you're looking for and received a copy of the full business agreement - including the details of the purchase/refinance. Acorn then charge a success fee based on the amount of finance arranged. This would only be payable once an offer of finance (in line with the original Terms of Business) had been received.

I cannot stress enough the importance of making sure you fully understand the terms of any agreement you sign, take the time to read the details and please don't give over any money until you are happy with the service being offered. This rule is applicable in any situation but especially when dealing with commercial finance - getting it wrong can be a massive headache in the future. Dealing with members of the NACFB helps to give you a little bit of extra security and that all important peace of mind.

Even with the basic ground rules in place it can still be daunting choosing a broker - so what makes Acorn different and why are we choosing to recommend them?

Well firstly, Acorn are not a lender, they're a broker (in much the same vein as you would use a mortgage broker to arrange your domestic mortgage, they do the same for the licensed trade). Because they are independent they have lenders knocking on their door wanting thier business, in fact they have up to 200 lenders at their disposal, many of them specialising in a different sector of the market.

Acorn are industry specialists, they understand the hospitality and licensed trade and the people in it.. You can see from their website, it’s not just a case of arranging a loan and letting the client “get on with it” but using their knowledge and contacts to help you find the right premises, draw up a reasonable plan and use the right professionals to complete the purchase with speed and efficiency.

Bank managers (generally) are targeted and; of course, bonused on a variety of measures like how many interviews, applications etc. Acorn do not get paid without the deal happening, which means they work hard with the client to make sure it goes ahead!
There are many commercial brokers advertising to the hospitality sector who do not understand the market, these can be identified by the “85% Loan to value” adverts. Essentially these companies are advertising only one lender (the only one they work with) directed at “non status” applicants (those with CCJs etc) at high interest rates, indeed the 85% loan on offer is of “bricks and mortar” rather than the full market value of the site (which Acorn use) so a typical loan of 75% - 80% from Acorn is actually more than these other lenders.

Take a £750k pub for example, Acorn arrange an 80% loan of £600,000, maybe some brewery finance as well to bring the total up to £625k., an alternative lender such as a bank may go at 85% of the “Bricks and Mortar” value which is likely to give a loan of £478,125 and not being in the trade, do not know the breweries to get the top up where necessary.
The loan from Acorn costs (say) £3990 per month for the main loan and £277 for the brewery, the alternative options is likely to be £4,195 per month and that's for the reduced level of funding.

Acorn use the whole market to get the best deal for thier clients, most of whom come back again and again as their business grows or they move to better premises.

As you can see Acorn provide a complete care package and from my dealings with them they have been honest, upfront and approachable - something BARventure values in all suppliers and service providers. In fact these same three qualities are often what set aside excellent hospitality operators from the riff-raff in it for a quick buck.

And Acorns biggest tip if you're looking for a commercial loan? "Look at the monthly repayment, clients always worry about the interest rate and the margin, these are of little importance when to save (say) 0.25%, the term of the loan is reduced to 10 or 15 years, it is cashflow (or lack of) which makes businesses struggle, not the interest rate." We couldn't agree more.

You can find out more about Acorn by visiting their website or by giving them a ring on the number below and don't forget to mention BARventure.

Here's to getting the right finance in place and a deal that works for you.

David

Acorn Commercial Finance

Tel: 0845 644 1664
Fax: 01904 693 707

Skype: paul-acorn (if you cannot reach us, simply leave a message)

Email: enquiries@acorn4leisure.com

Acorn Commercial Finance
4 Clifton Moor Business Village
James Nicolson Link
York
YO30 4XG

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