Pub extension - mortgage business justification document

[Landlord]

Hi

We are looking at approaching the bank for a mortgage (a second mortgage I presume rather than a "remortgage" on the existing one - it's with the same bank) on our pub (therefore a commercial mortgage). We therefore need to compile a business justification document for their underwriters and I wondered if I could tap the collective wisdom of PH in order to get everything sensible included.

So far I'm planning on including:

1. Amount requested (no flies on me, eh!)
2. Description of what the extension is to (kitchen and restaurant), how many more covers it will give and other fringe benefits (being able to take larger groups including weddings, encouraging pre and post prandial up-spend with comfy seating areas, all weather dining etc.)
3. Projection of increases in revenue given increase in covers using current average spend per head.
4. We've been keeping a note of the number of covers we've turned away over the past few months due to being full - which the extension would obviate
5. Audited accounts for the past financial year
6. Current management accounts
7. Contingency plans given our reliance on our chef (he's been almost solely responsible for our turnaround and subsequent need for an extension. Justification being that we've proved a good chef works and therefore if he left we'd "just" need to find another good chef)
8. Indication of repeat custom v. new custom (sensible? It's just a finger in the air based on known versus unknown names in bookings... as I type, this sounds more and more unnecessary/irrelevant)
9. Break down of the builders’ quotes we've got showing what's to be spent where and where savings can/can't be made if necessary

So - anything else you think should be included that would strengthen our case with the bank/underwriters?

I've spoken to our bank manager and he's said that at some point (probably one of the last stages) they'll value the bricks and mortar pre and post build so should I not even bother to mention it albeit qualitatively?

[951TSE]

I wouldn't claim to know anything about the pub / restaurant business but a couple of things spring to mind that may be relevant especially as you're using the same bank:

1. How will the building work affect your current operation as the existing loan will still need to be serviced and as it's the same bank they might have a view on whether the new work will damage your ability to pay the old one?

2. For the new loan they might also need a breakdown of what you intend the loan to do. Is it to basic shell or fully furnished ready to feed customers. If to basic shell then how are you going to finance the completion of the fit out?

[Landlord]

951TSE said:

I wouldn't claim to know anything about the pub / restaurant business but a couple of things spring to mind that may be relevant especially as you're using the same bank:

1. How will the building work affect your current operation as the existing loan will still need to be serviced and as it's the same bank they might have a view on whether the new work will damage your ability to pay the old one?

2. For the new loan they might also need a breakdown of what you intend the loan to do. Is it to basic shell or fully furnished ready to feed customers. If to basic shell then how are you going to finance the completion of the fit out?

Two good points - thank you. If you're interested in the answers:

1. Normal operation can continue until the "very last moment" when the current exterior wall would need to be knocked through so we should be able to service the existing mortgage

2. Fully furnished so no need to detail how to finance the completion separately. We do, however, have breakdowns in the quote we've got from builders.

Thanks again.

[foliedouce]

As an aside your pub looks very nice, didn't even know it was there, I must pop in at some point.

[Landlord]

foliedouce said:

As an aside your pub looks very nice, didn't even know it was there, I must pop in at some point.

Please do, you'd be most welcome!

[foliedouce]

OP, did you end up getting your loan?

We made it up to your place for lunch today, 2nd time lucky, first time we followed our nose and ended up at the Cock and Rabbit (this time we used sat nav!) and we only live a couple of villages away.

I can see a large orangery eating area and extended kitchen on the back the pub. I guess your current revenue is limited to the size of the pub (in the winter at least).

Judging by the white Califonia in car park, it looks like you have some other PHers that frequent the place.

You have a great operation, we eat out with the kids 2-3 times a week and we''ll definately be back. Your menu delivers what it says, unlike a lot of the others nearby.

One tip, you're far too cheap, put your prices up!

Let me know if you need to borrow my K'Aracher, happy to run it up if you need it.

Keep up the good work

[Landlord]

Hi Kely,

foliedouce said:

OP, did you end up getting your loan?

Not yet. Unfortunately my father passed away a few days before we were due to meet with the bank. It's been a bit all over the place since then trying to pick up the pieces as he was a big part of the running of the pub and he took most of the knowledge of processes with him! We're very close to resuming proceedings however.

foliedouce said:

first time we followed our nose and ended up at the Cock and Rabbit

Oh dear, I'm sorry about that!

foliedouce said:

I can see a large orangery eating area and extended kitchen on the back the pub. I guess your current revenue is limited to the size of the pub (in the winter at least).

Exactly. We are frequently having to turn people away now which on the one hand is good that we have that demand but on the other is bad because we're missing out on that revenue plus people might not try us again.

foliedouce said:

Judging by the white Califonia in car park, it looks like you have some other PHers that frequent the place.

Damn, I missed it! We have had some lovely cars in the car park recently so I do wonder whether they're PHers. It's not the thing to do to go up to strangers and ask "are you from PistonHeads" for fear they aren't!

foliedouce said:

You have a great operation, we eat out with the kids 2-3 times a week and we''ll definately be back. Your menu delivers what it says, unlike a lot of the others nearby.

One tip, you're far too cheap, put your prices up!

Thank you so much. We are genuinely delighted when people enjoy what we offer. As for the prices, we've actually had a few comments along those lines. It's such a fine line to walk because we're aware we're still building our reputation and we want that to be a solid one based on excellent food and service. The worst thing we could start with is "it was nice but a bit too expensive."

foliedouce said:

Let me know if you need to borrow my K'Aracher, happy to run it up if you need it.

You must have seen Landlady struggling with it then! Thank you for the offer, it's very much appreciated. The thing is almost brand new so once I've had a look at it, if it's broken then it's going back!

foliedouce said:

Keep up the good work

Once again, thank you. It's lovely to know that people like what we're doing. Hopefully I'll be around next time you come up and I'll be able to say hello!

Phil.

[rog007]

The cost v demand debate is a fascinating one and one that has a different perspective based upon whether you're in or out of the business.

Your response from within the business was entirely normal and predictable. The comment about being too cheap from an outsider is equally valid.

A view that could be had is that you either expand to meet demand or increase price to exploit that demand and improve turnover and profitability. It is a fine line, so do it incrementally and not in a single leap. Price rises do need to be matched with a perceived increase in experience/value from the customer.

But the basic principle of if you have demand you cannot meet then your price may be out of alignment or you expand; but both do come with risks attached.