Need funding to expand your business? Find out how Paul Hope, owner of The Saxon Inn near Bishop Auckland, County Durham, got the cash to add B&B rooms to his pub.
"I plan to retire in five years time and Iwanted to leave the most sustainable premises I could," says Paul.
"The pub is the only asset left within a small village. I didn't want to leave and look back in a few years time and see it closed."
A huge investment in local tourism in the area combined with the location of the pub, next to a 1,400 year-old Saxon Church, meant according to Paul, that "the time was right" to borrow £150,000 to further diversify the business.
Paul, who has been a publican for 40 years, had previously invested and funded developments such as a new kitchen and restaurant, from the profits within the business. "We owned the premises lock, stock and barrel, and we had no mortgage, no debt, were cash-rich and thought it would not be a problem," he says.
"I have never been in bad debt and my credit score is excellent."
Paul says that initially he approached his own bank but "didn't get a great deal of feedback" and it never really moved forward with his application – it is the bank that already does his personal banking as well as that for a number of buy-to-let rental properties.
Loosening the purse strings
However, despite the fact that the pub business was worth £375,000, and he was asking to borrow less than half that, he was offered a loan of only £100,000.
He also approached other funding companies but there were a number of pitfalls.
"Some were too expensive to repay, some did not want to loan that much and others said we had more than adequate security but the timeframe was not flexible," he says.
"I wanted to pay it back as if we were not using the accommodation, so the business itself could afford to pay it not taking account of the rooms."
He then decided to speak to financial broker PXL Associates, who searched the market for the best deal. They advised Paul that the NatWest bank was the best option.
Paul says be believes that his knowledge of the pub trade, strong accounts and bank statements and good operation, persuaded NatWest the pub was a "good financial risk".
Paul received £190,000 investment from the bank to be repaid over 15 years. He also invested £60,000 of his own money.
This was used to build and fit nine double, twin and family en-suite bedrooms. The development involved transforming the previous three- bedroom owners' living accommodation above the original 400-year-old building.
This was then extended over the newer-built restaurant, bar and lounge areas. The rooms soft-opened in December 2018 and officially launched at the beginning of March with the rate for double or twin rooms from £70 to £90 for bed and breakfast.
"We probably could have started six months earlier than we actually did but I was always looking for a better deal. Don't always accept your first deal, look for the best deal," he advises.
He says that the best approach is to look at as many different funding avenues as possible, depending on the type of investment and development.
"Get everything that you need in one place because the amount of information you need is substantial," he says.
Paul says that the rooms are already trading well and he has already purchased an additional piece of land to extend the car park and kitchen, while refurbishing the exterior and lounge area. Although he has been offered additional funding from NatWest, he is hoping he can fund this from the profits within the business.
The bank's verdict
Paul Marshall, relationship manager at NatWest, granted the funding to Paul Hope as The Saxon was a long-established business with a strong profile in the community and was diversifying income streams to strengthen the business. He says that the pub had profitable trading, provided financial forecasts that covered various possible outcomes and Paul Hope was also able to invest personal cash and assets.
"He had clearly fully researched the project, had undoubted enthusiasm for it and was prepared to back his claims with both time and money," says Paul Marshall.
He says it was key to visit the customer and discuss his proposals face to face as well as look at the premises and the plans. "I am fully aware of a number of projects under way in the town which should attract people to the area and so was able to fully understand and substantiate hisproposals," he explains.