Deposits, LTV and what lenders want

Deposit and LTV: the two go together

The deposit on a pub is simply the inverse of the loan to value a lender will allow. Loan to value, or LTV, is the loan as a percentage of the pub's going-concern value. If a lender offers 65% LTV, the deposit is 35%. The stronger and more stable the pub, the higher the LTV and the smaller the deposit; the weaker or more unproven it is, the lower the LTV and the larger the deposit. There is no high-loan-to-value pub mortgage the way there can be in residential, because a pub is a trading business and lenders require a meaningful equity stake.

This guide is about what lenders want on a pub bought as a business. A small pub with living accommodation bought as the borrower's only home can be a regulated case, which we refer to an authorised firm. For trading-business deals we arrange the commercial finance and act for the buyer.

The affordability test that caps the loan

Even where the LTV would allow a large loan, the amount is capped by affordability. The lender takes the pub's fair maintainable operating profit and checks that it covers the loan repayments with headroom, the debt service cover. If the pub does not produce enough maintainable profit to service the loan comfortably, the loan is reduced until it does, regardless of the value. This is why two pubs at the same price can support very different loans: the one with the stronger, steadier trade borrows more.

Lenders also stress the figures, checking the loan still services if rates rise or trade softens, and they read the make-up of the trade as well as the total. A pub heavily dependent on one busy night, a single event or seasonal trade is judged more fragile than one earning steadily from drinks, food and accommodation across the week, even at the same headline profit. That resilience, or the lack of it, feeds straight into how much a lender will advance.

What lenders want to see

Beyond the deposit and the trade, a pub lender is assessing whether the borrower can run the asset and stand behind the loan. The package that gets a deal approved is consistent across lenders, and preparing it well before applying is one of the simplest ways to improve both the terms and the speed of a decision.

• Three years of trading accounts and up-to-date management figures, clean and normalised
• A credible business plan with realistic turnover, wet and dry split and cost assumptions
• Evidence of licensed-trade experience, or an experienced manager or partner where the buyer is new
• A verifiable deposit from a clean, documented source
• A clear view of tenure, freehold or leasehold, and any tie
• Personal financial information, assets, liabilities and any other business interests

Where a buyer is new to the trade, lenders are not closed off, but they will ask more questions about how the pub will be run, look for a larger equity contribution and scrutinise the trade more closely. An experienced operator, a strong manager or a clear, evidenced plan can bridge a gap in personal experience. We position first-time buyers and seasoned operators alike to the lenders that suit them.

What lifts or lowers your borrowing

• Lifts it: a consistent or rising trade, a free-of-tie freehold, an experienced operator and a resilient location
• Lowers it: declining trade, a short or tied lease, a closed or seasonal pub, a first-time operator or a thin local market
• Equity quality: clean, verifiable deposit funds and a sensible working-capital buffer
• Plan quality: realistic, evidenced assumptions rather than an optimistic forecast

Each of these moves the LTV, the affordability or both. We test a deal against several lenders before applying, because appetite differs sharply by profile, and the right introduction often moves both the leverage and the rate in the borrower's favour. The loan is also sized against the lender's own valuer's figure rather than the asking price, so where a valuation comes in low you either find more deposit or renegotiate.

Proving the deposit is clean

Lenders and solicitors must satisfy anti-money-laundering rules, so the deposit has to be real, clean and evidenced. Acceptable sources include cash savings, proceeds from selling another property or business, and equity released from another asset. You should expect to show bank statements, sale completion statements or investment records demonstrating where the money came from and that it has been held for a reasonable period. Funds that appear suddenly, or are routed through several accounts, slow a deal and raise questions.

Borrowed deposits, or funds that would introduce a second charge the senior lender has not approved, complicate or block a deal. Preparing the source-of-funds paperwork early, alongside the trading accounts and the business plan, is one of the simplest ways to keep a pub purchase on track. We tell buyers exactly what each lender will want so the evidence is ready before it is asked for, rather than scrambled together at the last minute.