How Pub Owners Approach a Commercial Mortgage
Buying the pub you run, or a freehold you have had your eye on, is a defining step for any hospitality operator. It turns rent into equity and gives you long-term control of the site. At Ardent Capital Group we speak with owners about this kind of purchase, and this guide explains how a lender reads a freehold pub and the deposit to plan for.
The first thing worth knowing is that a pub is not valued or funded like an ordinary shop or office. It is a specialised, trade-based asset, and a lender reads it accordingly. At Ardent Capital Group we speak with pub owners about this kind of purchase, so this guide sets out how the valuation works, what deposit to plan for, and how the finance is arranged around the way you hold the property.
Once you understand how a lender reads a pub, the numbers stop being a mystery and start being something you can plan around.
Why a pub is valued as a going concern, not just a building
A shop is valued on comparable sales and the rent it could earn. A pub is different. It is a specialised, trade-based asset, so a lender values the freehold and the business together as a going concern, on the strength of the trade it produces. The property, the licence, the gaming entitlements and the earnings are read as one.
That has two consequences. The valuation is done by a specialist who assesses the trade and the earnings, not just the bricks. And because the asset is specialised, it gears lower than standard commercial property. That is not a mark against your business. It is how lenders treat a trade-based site.
The deposit needed to buy a freehold pub
For a freehold going concern, a lender will typically fund around 55% to 65% of the value, so you plan for a deposit in the range of 35% to 45%, plus the usual purchase costs. Where you buy the freehold as an investment let to an operator on a strong lease, the picture can improve, because the lender is looking at contracted rent rather than trade you have to run yourself.
The exact figure depends on the site, its location, the trading history and how the purchase is structured. Rather than assume a number, it is worth having the specifics of your purchase looked at, which is what our pub property loan page is there to help with.
What underwriters focus on with a pub purchase
A specialist lender looks well beyond the building. The things that move a pub assessment:
- The income mix across wet trade at the bar, food, accommodation and gaming, and how it is split. A venue weighted to gaming is read differently to one weighted to food.
- Gaming machine entitlements and their value and transferability, which vary by state and can form a real part of what is being bought.
- The liquor licence type, its conditions and its trading hours, all of which shape what the site can earn.
- Beer supply arrangements and whether the venue is free of tie or trades under a supply agreement.
- What is actually being bought, whether that is the freehold going concern of property and business together, or a freehold let to a separate operator.
- Trading history under the current and any previous operator, since the earnings underpin both the valuation and the loan.
- Attached income from accommodation rooms or a packaged liquor and bottle shop, where they add a second and third revenue line.
- The land and alternative use, since a pub on a substantial parcel carries value beyond the trade if it ever stopped operating.
- Location and competition, whether it is a metro or regional site, its passing trade and the venues around it.
- Condition of the fit-out across the cellar, the kitchen and the gaming room, which affects both the trade and any spend needed after settlement.
The cellar and beer lines, gaming machines, commercial kitchen and gaming-room fit-out can be funded inside the property loan or kept separate as pub equipment finance, depending on how you want the balance sheet to sit.
A worked example: financing a pub purchase
This is an illustrative scenario that shows the kind of situation we can assist with, and how the thinking might run. A pub owner had leased a suburban venue for eight years when the freehold came to market. The trade was steady, split across the bar, the kitchen and the gaming room, and the equity in the family home covered most of the deposit. The open question was serviceability. Because they already ran the venue, the rent they would stop paying to the landlord could be added back when a lender tested the loan, which strengthened the case. How we would approach it: we would map the going-concern valuation, the deposit range and the repayments across the lenders that suit a trade-based site, then present the file around the trading history and the rent displacement. The figures would stay illustrative until a valuation and a credit assessment confirmed them.
Structuring finance for a pub purchase
Pubs are held in a range of ways, and each one reads differently to a lender. Many operators hold the freehold in a company or trust, separate from the entity that runs the venue, so a lender reads the inter-entity rent as the serviceability line. Some buy the freehold inside a self managed super fund and lease it to the operating business at market rent, which follows its own lending rules, gears lower than a standard purchase, and requires the property to be held under a bare trust with the fund's arm's-length requirements met. Ardent arranges the lending around your entities, and the tax, super and ownership detail sits with your accountant and SMSF specialist to confirm before you proceed. It is far easier to arrange the finance cleanly at the start than to unwind it later.
Typical loan terms on a commercial pub mortgage
Commercial pub facilities commonly run to around fifteen years, and the rent you stop paying to a landlord is added back when a lender tests whether you can service the loan. That is a genuine advantage of ownership. The money that used to leave the business as rent now works to pay down an asset you keep.
Documents you need to finance a pub purchase
You will move faster, and often borrow more comfortably, with these ready from the start:
- Two to three years of trading financials and tax returns for the business.
- The contract of sale, and for a leased purchase the lease.
- The liquor licence and gaming entitlement details.
- The structure buying the property, including any company or trust deed.
Many hospitality owners are self employed and their paperwork understates their real position, so alternative documentation options let a strong pub be evidenced properly rather than held back by a standard income test. Day-to-day costs like stock, wages and refurbishment between trading periods sit outside the mortgage and are funded as working capital for a pub.
Getting advice before you buy a pub
Buying a pub is a purchase where the structure and the strategy matter as much as the rate, because they shape what the asset does for you over the next decade. At Ardent Capital Group we give business owners clear advice on both, so the finance is built for the wealth and longevity you are working towards, not just for settlement day. If you are considering a pub purchase, we would be glad to look at the specifics with you and map out the numbers.
Written by
Nick Chong
Managing Director, M.AppFin, Dip. Mortgage Mgmt
Nick holds a Bachelor of Agricultural Economics, a Master of Applied Finance and an Advanced Diploma in Financial Planning. He founded Ardent Capital in 2016 after more than a decade in financial planning and mortgage broking. For the past ten years he has led a team of finance specialists, mortgage advisers, brokers and credit analysts, all working to secure optimal outcomes for clients and always acting in their best interests. The team brings both a qualitative and a quantitative approach to every deal.
