What a licensee can actually borrow against
Pubs sit awkwardly with mainstream lenders. The freehold trade is a specialist property class that high street banks lend on cautiously. The tenanted and leased trade often has no asset to secure against at all, because the building belongs to a pub company. Stock turns fast, margins are visible and the trade is famously seasonal, so a lender assessing a licensed business on accounts alone tends to arrive at a conservative answer.
The realistic options split four ways. A commercial mortgage funds the purchase or refinance of a freehold house. A secured or unsecured business loan funds a defined project over a fixed term with fixed monthly repayments. Asset finance covers cellar cooling, glasswashers, kitchen equipment and furniture, secured on the kit itself. And a merchant cash advance converts the card takings already going through the terminal into a lump sum, repaid as a percentage of each day's card settlement.
Brewery and pub company support sits alongside these, usually as a fixtures loan or a rent concession tied to a longer term or a stocking agreement, which is worth understanding before you take third-party money. The right answer depends less on which product sounds cheapest and more on what the money is for, how long the return takes, and whether the business can carry a fixed payment in February as comfortably as in July.
An advance on bar takings explained
A merchant cash advance is a purchase of future card receivables that gives a pub a lump sum now in exchange for a fixed percentage of its daily card takings until an agreed total has been delivered. That structure is the whole product, and it is genuinely different from borrowing.
There is no interest rate and no APR, because nothing is lent. Instead a factor rate, typically between 1.1 and 1.5, is applied to the amount advanced to set the total repayable. Advance £30,000 at a factor rate of 1.3 and £39,000 is owed, whether that takes seven months or fourteen. There is no fixed term, no monthly instalment and no penalty for a slow month, because collection is proportional. A holdback of typically 5 to 20 percent of daily card settlement is taken, either split at the acquirer before money reaches your account or by daily direct debit.
Advances typically run from £5,000 to £500,000 and are sized close to one month of card turnover. For a busy wet-led site that can be a meaningful sum arranged in days rather than weeks. Our guide to how a merchant cash advance works walks through the collection mechanics in detail.
How a funder reads wet-led card takings
Underwriting a pub is mostly an exercise in reading merchant statements. A funder wants three to six months of them, and from that data they draw out average monthly card takings, the number of trading days, the shape of the week and the direction of travel across the period.
Wet-led sites read well for one specific reason: transaction frequency. A pub taking a few thousand pounds across several hundred small card payments a night delivers an advance smoothly and predictably. A funder collecting a percentage of that flow gets paid every single trading day. Compare that with a business invoicing monthly, where collection is lumpy and the funder carries more timing risk, and you can see why licensed premises are core territory for this product.
Two things reduce the number. The first is cash. Wet-led pubs, particularly community locals and sports bars, still take meaningful cash across the bar, and cash is invisible to a funder. Only card settlement can be seen and collected, so a pub with a forty percent cash mix is offered against the sixty percent that runs through the terminal. The second is a declining trend. A funder reading six months of falling takings will size cautiously or decline, because the advance is delivered out of future trade, not past trade.
Holdback percentages against wet and dry margins
Gross margin on drink is the reason this product works for licensed premises. Draught and spirit margins give a pub more room to absorb a daily deduction than a food-led operation has, which is why wet-led sites can usually carry a holdback nearer the upper end of the range without the deduction biting into working capital.
Where a site has moved heavily into food, the calculation changes. Kitchen wages, waste and food cost sit against a thinner margin, and a high holdback on the combined takings can leave a manager short for the following week's orders. A pub running a serious food operation is usually better placed on a lower percentage over a longer expected delivery period. Because the factor rate fixes the total repayable, stretching delivery does not cost more. It simply takes less out of each day's till.
That is the single most useful thing to understand before signing. The holdback controls pace, not price. Publicans often assume that clearing the advance quickly saves money the way overpaying a loan does. It does not. If the cost looks high, the lever to pull is the factor rate, and that is a negotiation about the quality of your statements, not about how fast you trade.
Refurbishment, cellar equipment and outdoor trade
Refurbishment is the most common reason a licensee comes to us. A tired interior costs trade quietly, and the return on a good refit shows up in wet sales within weeks rather than years. That short payback period is exactly the shape an advance suits: money in fast, repaid out of the extra takings the work generates.
The recurring uses across the licensed trade are consistent. Redecoration and new furniture. Cellar cooling and beer line replacement, which is the sort of failure that cannot wait for a lender's credit committee. Glasswashers, ice machines and kitchen kit. Covered outdoor areas, heaters and garden furniture ahead of the summer, which for many sites is the largest single revenue lever available. Bringing in a new EPOS or terminal setup. Stocking up for a festival weekend, a bank holiday or a tournament.
Working capital between quarters is the other regular use: covering a VAT bill or a rent quarter that lands after a slow month, then repaying it out of the busier period that follows. What an advance is not built for is a long project with a distant payoff. A structural rebuild, a full kitchen extension or anything with a multi-year return is better matched to a term facility or asset finance, where the repayment profile can be spread across the life of the asset.
Tied tenancies, leases and free-of-tie agreements
Your agreement with the pub company shapes what funding is available and what a funder will do. A tied tenant buying beer at tied prices has a lower gross margin than a free-of-tie operator, and that shows up directly in the ability to carry a holdback. It is worth flagging your tie position early, because a funder pricing on turnover alone may not have adjusted for it.
Lease length matters too. Where a funder is sizing an advance against future takings, they will want reasonable confidence that you will still be trading through the delivery period. A short remaining term, a break clause approaching or an unresolved rent review are all reasons an offer may come back smaller than the takings suggest. Tenants at will and short-term agreements are hardest to place.
Landlord consent is generally not a factor, which surprises people. Because an advance takes no charge over property and no assignment of the lease, there is usually nothing for a pub company to approve. What may be relevant is any restriction in your agreement on third-party finance or on changing card processor, since some advances are collected through a split at the acquirer. Check the wording before committing to a structure that requires switching terminals.
Seasonality, fixtures and the January dip
Licensed trade income is not a straight line and never has been. A beer garden site can take a third of its annual money in twelve weeks. A city centre bar lives on Christmas. A sports-led pub swings with the fixture list, and a summer tournament can be worth more than a normal quarter. Then January arrives, and takings fall off a cliff for everyone.
A fixed monthly repayment ignores all of that. It is the same in January as in July, which is precisely when a lot of licensed businesses get into difficulty: the loan that was affordable in a good summer becomes a serious problem in a wet February. A proportional holdback moves the other way. Quiet week, smaller deduction. Big weekend, larger one. The business is never asked for a payment it has not taken the money to make.
That does not make an advance automatically cheaper or safer. The total repayable is fixed, so a long quiet spell means you carry the obligation for longer rather than paying less. But for a trade with this shape of income, matching the repayment to the takings removes the specific risk that kills pubs, which is a fixed outgoing landing in a month with no trade behind it.
Term borrowing compared with an advance for licensed premises
A business loan is usually cheaper in absolute terms if you qualify for one at a reasonable rate. Interest on a term facility, expressed as an APR and paid down over the life of the loan, will typically cost less than a factor rate applied to a short-dated advance. Any broker telling you otherwise is selling. For a pub with clean accounts, a good credit file, security to offer and time to wait, a term loan or a commercial mortgage should be the first port of call.
The advance wins on four things. Speed, because a decision follows merchant statements rather than a full credit process, often within a day or two. Access, because underwriting weights card turnover far above credit history. Security, because there is no charge over the freehold, although a personal guarantee is still common and should be read carefully. And repayment shape, because collection flexes with trade instead of demanding the same amount every month.
In practice most licensees end up using both across a cycle: a term facility or asset finance for the structural spend, and an advance for the fast, seasonal, opportunistic money. The mistake is treating them as competitors. They solve different problems, and choosing on headline cost alone leads publicans into fixed commitments their trading pattern cannot support. Our page on merchant cash advance lenders sets out who is active in this market.
Credit history, county court judgments and prior arrears
The licensed trade carries scars. Plenty of otherwise sound pubs came through the last few years with a payment plan behind them, a judgment on file or a directors' credit file that would stop a bank conversation in the first five minutes. This is where an advance genuinely differs, because the primary underwriting evidence is the card settlement data, not the credit bureau.
That does not mean credit is ignored. Funders run a search, look at the directors and take a view on undisclosed defaults, an active winding up petition or a pattern of returned direct debits, any of which will stop a deal. What it means is that a consistent set of merchant statements can carry a case that a credit file alone would sink. Weak credit typically shows up as a higher factor rate or a smaller advance rather than an automatic decline.
Anyone advertising a no credit check advance is describing a soft search, not the absence of one. Our page on bad credit merchant cash advances explains what is genuinely available and what the extra cost of it looks like, so you can judge whether the money is worth taking.
Buying a pub is a different problem
A large share of searches around pub finance are from people trying to buy one, and it is worth being direct: an advance cannot fund an acquisition. There are no card takings to underwrite until you are trading, and the delivery period is far too short for an asset you intend to hold for years.
Buying a freehold house is a commercial mortgage question, and lenders in that market will look at the property's value, its trading history, your experience in the trade and the deposit you can put in. Taking on a lease is a different exercise again, involving an ingoing cost covering fixtures, fittings, stock and often a deposit, which is usually funded from personal capital, a start up loan or a secured facility rather than from trading finance. Brewery and pub company schemes exist for new entrants and are worth investigating before commercial debt.
Where an advance does become useful is shortly after you take over. Once the terminal is in your name and a few months of card takings have built up, the business becomes fundable in its own right, which is often the point at which a new licensee needs money for the refit they could not afford at ingoing. Three months of processing history is the usual minimum.
When an advance does not suit a bar
We turn down more pub enquiries than we place, and the reasons repeat. If a site is trading at a loss, an advance moves the problem forward and adds a daily deduction to it. That is the fastest route from a difficult year to a closed pub, and no factor rate makes it work.
If your takings are predominantly cash, the sizing will disappoint you and the exercise is probably not worth the paperwork. If you are already running an advance and thinking about a second, be very careful: two holdbacks against one till compound quickly, and stacking is the single most common cause of distress with this product. Restructuring the existing agreement is almost always the better conversation. If the money is for a long-dated capital project, the shape is wrong. And if you are buying rather than trading, see the section above.
An advance is a good tool for a profitable licensed business with a timing problem, a seasonal peak to fund or a refit that will pay for itself in a season. It is a poor tool for a structural loss, and anyone willing to write that business without asking why the takings are falling is not doing you a favour.
The regulatory position, plainly stated
An advance is the purchase of future card receivables, not credit. Where the agreement is with a limited company, it falls outside the Financial Conduct Authority's consumer credit perimeter and is unregulated commercial contracting between two businesses. There is no APR to compare, no cooling-off period of the kind consumer agreements carry, and the contract wording governs almost everything.
That makes reading it properly more important, not less. Look specifically at how card takings are defined, whether the funder can vary the holdback, what happens if you change acquirer or terminal provider mid-agreement, whether a personal guarantee is included and what constitutes a default when there is no missed payment to point at. These are the clauses that cause arguments.
Sole traders and some small partnerships are in a different position, because certain agreements with unincorporated businesses can fall within the Consumer Credit Act, bringing disclosure requirements and protections with them. If you hold the licence personally rather than through a company, ask the funder directly which regime applies to your paperwork before you sign.
How we arrange funding for licensees
We arrange and place, we do not lend, and we are paid by the funder rather than by you. What that buys a licensee is a market view: which funders price wet-led seasonality sensibly, which will work with a higher cash mix, which are comfortable with a short lease, and which acquirer programmes attached to your existing terminal are worth taking rather than shopping around.
The process is short. Send three to six months of merchant statements and recent bank statements, tell us the tie position, the lease term and what the money is for, and we come back with the offers worth considering, compared on total repayable and daily holdback together rather than on the headline figure. Where a term facility or asset finance is the better structure, we will say so and point you at it. Pubs and restaurants share most of this mechanics, but the margin profile is different enough to be worth treating separately.