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19 April 2021 | Retail Mortgages

Funding for the convenience retail sector in 2021 : A broker's view

Physical retail has been in the headlines for all the wrong reasons over the last few years. Changes in consumer behaviour and an archaic taxation regime distorted the market long before the COVID-19 pandemic arrived. Amongst the doom and gloom of high street woes however, there are positive trends to be found, such as the continued growth of convenience stores.

The shift in buyer behaviour towards convenience shopping is well documented, and like many consumer trends, appears to have accelerated during the pandemic. Despite this positive trend, lenders still tend to categorise these businesses in the broader ‘retail’ segment, fearing individual sites may be suffering similar consequences to the high street. This has resulted in us as finance brokers having to work harder to secure commercial finance for our clients than in previous years. A substantial change we have witnessed is the increased need for up-to-date management information, demonstrating brisk trade has continued since the last set of accounts were filed.

One question we are often asked as brokers, is whether funding can be obtained against goodwill or is it limited to the underlying value of the property? Although lenders have become more cautious, and most new lenders are focused on property lending, there are still options for purchasers who need funding over and above the property value. This will require increased preparation - business plans, forecasts, and an assessment of current trade. An experienced broker will add significant value to this process especially for first-time buyers who may not be as well versed in preparing this information.

Questions relating to funding leasehold sites are also common. Leasehold convenience stores can be an accessible option for first-time buyers, or operators looking for a secondary site. The length of and the conditions within the lease can make or break a deal therefore, it is important to understand lender requirements. Leases of 10 to 20 years will provide a degree of security to lenders, although viewed in isolation, they are likely to result in a restricted loan amount. Those buyers who own property (residential or commercial) with equity, may be able to use these properties as additional security to provide further comfort to lenders.

With many convenience stores seeing 10 to 20 per cent uplifts in turnover during the last 12 months, many operators have focused on increasing floor space, expanding their offerings with new stock lines, and investing in technology, enhancing the overall customer experience. Several retailers spoken to believe this to be a “once in a generation opportunity to impress and retain customers”, before a new normal in consumer behaviour develops.
 
Christie Finance’s Unsecured and Asset Finance team has received a significant uplift in enquiries as retailers seek fast and flexible funding, enabling them to deploy new solutions whilst they have a relatively captive audience.  Although many of the high street lenders are inundated with loan applications, our team has access to a broad range of funding options, offering a variety of terms and are typically able release funds in a matter of days rather than weeks or months.
 
If you would like to understand the various funding options available in the convenience retail sector, please visit christiefinance.com for further information or email us at enquiries@christiefinance.com . We have been arranging commercial funding in the convenience retail sector for over 45 years and have the necessary experience to navigate these extraordinary times.