Financing a Hotel or Pub Purchase: 3 Things to Consider Before You Sign Up

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If you are looking to buy a local pub for sale, it is likely you will be looking to borrow a large sum of money to cover the initial cost of the purchase. A loan on a hotel or pub normally differs from a residential home mortgage, in that it will often specify the terms on which the business is managed. Below is a guide to three things you should keep in mind when looking for finance:

The scope of any oversight

Some loan companies are quite happy to provide capital for a pub or hotel investment without the need for much oversight. However, other lenders, especially those who already have interest in the sector may require an increased level of oversight. The type of loan which typically requires increased oversight of the operations of their borrowers is one supplied by a larger hotel or pub company who is providing funding as part of a franchise deal. Under most franchise deals, you will be branding your hotel or pub using the parent companies logo. Because you are representing the parent company, they will want to ensure that the service you are providing does not damage their public image. 

The management fee

The terms and conditions of the loan will typically include a section which states that the repayment of the loan should take precedence over the payment of any management fees. Most pubs and hotels operate as part of a franchise agreement with larger operators. These operators will charge you a management fee which covers the licensing, insurance and administration cost of the business. While it is understandable that the company loaning you the money want to be at the front of the queue regarding repayments, it is also important to keep in mind the fact that without the support of the parent company, your business will quickly fail. You should, therefore, employ a broker who will be able to negotiate the best possible terms which create parity between loan repayments and the management fee.

The management termination agreement

Most lenders who supply money for the purchase of hotels and pubs will stipulate that they require stable management to be in place. If you are purchasing a hotel or pub but will be appointing someone else to manage the day-to-day operations of the business, it is very important that you establish the grounds on which you can terminate the management agreement. Doing so will allow you to ensure that your business is being run in a sound way which will allow you to meet your loan repayments and if it is not, you will be able to take action to dismiss the current management and hire a new team. A broker will be able to help you to negotiate this part of the contract so that it meets the needs of both parties.

For more information, you should contact a hotel broker today.