Uncertainty reigns ahead of Brexit

Funding options are essential for Scottish operators as outlook remains clouded

Brexit rally
Operators are said to be increasingly anxious about investing funds ahead of Brexit.

WITH competition tight in the on-trade, access to finance for operators whether they are just starting out or veterans looking to invest in long-standing outlets remains crucial.

However, with the ‘B’ word still casting a cloud of confusion over UK businesses, obtaining support can prove tough in the current climate, in the run up to ‘Brexit Day’, which is slated for March 29.

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Will Clowes, head of key customer growth at business finance firm Liberis, said: “With the uncertainty of Brexit on everyone’s minds, it’s likely that a sense of caution has set into the market.”

Catherine Anderton of SME Business Finance, said that while factors like Brexit don’t appear to have affected the market for credit, “we have seen a change in the willingness to commit to the purchase of premises that has impacted on sellers and has worsened over the last two or three months”.

“This appears to be as much to do with the uncertainty caused by Brexit as with Brexit itself,” she said.

“For example, we know of commercial property transactions stalling as purchasers have decided to wait until after the end of March when they will assess the outcome of Brexit.”

Steve Fleming, managing director of consultancy SJF Scotland, stated that while Brexit has caused uncertainty, he thinks the ongoing business rates saga is more damaging for licensed businesses.

“There is little doubt that it is becoming tougher to obtain support,” he said.

“A number of failures, and increased occupancy costs, against a backdrop where there is overprovision, have made mainstream banking lenders even more cautious.

“Whilst Brexit remains a worrying uncertainty, I think the increase in business rates coupled with less demand is more relevant.”

Regardless of political factors, consumers still want to go out and enjoy themselves.

Martin Ramsay, relationship director at Royal Bank of Scotland, stated the “pub and bar sector remains strong”.

“Good operators are still identifying opportunities in the market and across Scotland,” he said.

“I don’t feel that any additional barriers to funding have become apparent over the last year.”

Clowes of Liberis said first-time operators looking to fund an initial outlet must be willing to put in more energy and risk than established multiple operators.

He said: “The multi-site operator has the benefit of having a broader trading history and therefore a potentially wider range of finance options; as opposed to start-ups who in many cases may need to give away equity to raise funds, to balance the risk for the investor.”

That view was echoed by Barclays’ corporate development director for Scotland, Paul Smith, who advised operators to ensure they are prepared before applying for finance.

“We would expect the approach to be similar in terms of focusing on sound business planning but a newcomer to the trade will have more initial work to do to demonstrate the viability of the business,” he said.

“They must be able to demonstrate why it is a good investment for the bank through solid market research which evidences consumer demand, competition and profit potential.

“This should include comment on the local market and competition, key people involved, including details of the professional team supporting the business, market research, unique features expected to make the business successful, level of cash contribution and proposed security.

“Similar principles will apply for established operators but all parties will have the benefit of historic trading results and it is understandably lower risk to provide lending facilities based on actual figures as opposed to forecast profitability.”