Pub bridging loan for trading, closed and conversion deals

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Trading value or alternative use value: how lenders value a pub

Specialist licensed property valuers use the profits method, estimating the fair maintainable trade a reasonably efficient operator could achieve and capitalising it. Lenders then compare that with the downside and alternative figures.

Value	What it reflects	Lender use
Going-concern value	Building, fixtures, licence and trade	Headline value for a trading pub or restaurant
Closed or vacant possession value	The property with trade stopped	Downside test that often caps the loan
Alternative use value	Residential or other use, only where planning is realistic	Supports the exit; rarely lent against without consent

For many rural and suburban pubs, the alternative use value is higher than the trading value. That does not mean a lender will lend on it. Without planning permission, lenders lend on the pub as it is, and treat conversion as an exit that carries planning risk.

What LTV does a pub bridging loan support?

Pubs, bars and restaurants are trading assets, so LTV is usually lower than the 70% to 75% common on standard commercial property. Lenders are more comfortable where the pub has consistent accounts, a free-of-tie freehold, an experienced operator and a location with year-round trade. They are more cautious with closed pubs, wet-led pubs with falling trade, heavily seasonal sites and premises needing major works. Additional security over other property can make up a shortfall. Our commercial bridging LTV guide explains how lenders calculate gross and net loans.

Asset of Community Value: why it matters to lenders

Under the Localism Act 2011, community groups in England can nominate a pub to be listed as an Asset of Community Value. A listing typically lasts five years. When the owner wants to sell, they must notify the council, which triggers an initial six-week moratorium; if a community group asks to be treated as a bidder, the moratorium extends to six months from notification. The owner does not have to sell to the community, but the timetable is fixed.

For a lender, an ACV listing can:

• slow a sale exit, because the moratorium must run before most sales can complete;
• weigh on planning, as listing can be a material consideration in change of use decisions;
• affect value, where the buyer pool is narrowed.

Check the council's list before you buy and build the moratorium into your term if you plan to sell. Your solicitor will explain which disposals the rules catch.

Licensing, planning and title points on licensed premises

• Premises licence: needed to sell alcohol under the Licensing Act 2003, with a designated premises supervisor. Lenders check the licence, permitted hours and any conditions.
• Planning use: in England, pubs and drinking establishments are sui generis, so changing their use or demolishing them needs planning permission. Restaurants and cafes sit in Class E, while hot food takeaways are sui generis.
• Restrictive covenants: pubs sold by pub companies sometimes carry covenants preventing future pub use or limiting what the building can become. These directly affect value and exit.
• Tied or free of tie: a free house gives the owner control of supply; a tied lease or agreement affects trading margins and value.
• Condition: cellars, kitchens, extraction and fire safety are inspected closely.

If you plan a conversion, read change of use bridging finance and take advice from a planning consultant early.

Living above the pub: regulated or unregulated?

Many pubs have living accommodation upstairs, and that is where the regulatory line matters. A pub bridging loan on premises held for business or investment purposes is unregulated, and we arrange it directly. If you or an immediate family member live, or will live, in the flat above the bar, the loan may be a regulated mortgage contract, and we introduce it to a firm directly authorised by the Financial Conduct Authority so the right checks are made.

We are not directly authorised by the Financial Conduct Authority ourselves. Accommodation occupied by an unrelated manager or let to a third party does not change the position. Our guide to regulated vs unregulated bridging covers this in more detail.

Common pub and restaurant bridging deals and exits

Deal	Why bridge	Typical exit
Buying a trading free house	Seller wants speed; term lender process takes longer	Licensed trade term loan
Buying a closed pub to reopen	No current trading accounts for a term lender	Term loan once trading is established, or sale
Pub with letting rooms or a restaurant to refurbish	Works needed before trade can grow	Term loan on improved trade
Closed pub for residential conversion	Purchase ahead of planning and development finance	Development finance, then unit sales
Restaurant premises purchase or lease-to-freehold move	Landlord or vendor deadline	Owner-occupier commercial mortgage

Auction pubs are common, with completion usually due within 28 days; see auction bridging finance. For conversions, our page on commercial to residential conversion finance explains how works and exit are funded.

Who is eligible, and what does a pub bridge cost?

Eligibility rests on the security, the exit and the borrower rather than income alone. Lenders want adequate equity, a credible exit, trading or operator experience where the pub will trade, and a clear account of any credit issues. Companies, SPVs, partnerships and individuals can all borrow, usually with personal guarantees where a company borrows.

A pub bridging loan is priced per month, typically above standard commercial property because of trading risk. Budget for an arrangement fee of typically around 1% to 2% of the loan, monthly interest, a specialist licensed property valuation, legal fees and, with some lenders, an exit fee. Model the total with the bridging cost calculator.

For longer-term finance on this type of property, see our sister site Pub Property Finance.

Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.