John Topping is managing director of Sangton Ltd, a small chain of pubs in the North West. Most of his business properties are leased but when he found the ideal premises for his first operation in Bolton he needed a commercial mortgage. It helped finance the purchase and transformation of the then car-parts shop and Italian restaurant into the 800-capacity late-licensed cafe-bar that is now McCauleys.
What I did
Work with the financial institution which best understood the nature of our business
"On the basis that you've really got to look around when you're spending so much we looked at a few of the key players offering mortgages. However, we found there was little to choose between them so we went with the Co-operative Bank who had had our banking business from day one. I think it helped that we already had a successful relationship with the manager there and we used the opportunity to renegotiate the whole of our banking deal.
"The bank also offered us a repayment holiday for the first year. That was important as we were using our own cashflow to part-finance the purchase and I knew there would be little left in the first year for repayments - especially given the early and big push in marketing that's essential to get a bar operation going."
Write a full set of business projections and get all the relevant permissions
"I was confident that what we needed to borrow would be more than covered by the returns on the actual property. Still, I had to put together a full forecast and business plan. I did the plans myself and being very professional when doing it must have helped because we had mortgage offers from all the banks we approached. I think it gives them confidence in you.
"Before getting the mortgage I also had to prove we could get the premises licensed as it hadn't been a pub before, get the planning permission required for the refurbishment, and have a full valuation done. That was all very frustrating. It took more than 18 months from start to finish to get the mortgage and things did change over time. That meant we had to keep updating our forecasts."
Draw on the mortgage in stages
"We took the money only as and when we needed it over the purchase and refurbishment period. I'd arranged to borrow £700,000 but in the end I actually only borrowed £600,000. This was because the project took longer than anticipated and cashflow from the rest of the business continued to grow. From that point of view, drawing on the mortgage in stages worked really well."
What I'd do differently
Negotiate harder on personal guarantees
"I think I've put quite a lot on the line to take out the mortgage. My personal property is now acting as a guarantee and I think I could have arranged a better deal than that. It's a psychological point really but when I apply for a commercial mortgage again - and I will do this - I think I'll be tougher on it."