Buying a pub, restaurant, care home, nursery, hotel, dental practice or convenience store from leasehold premises is a different lending proposition from buying the freehold. The borrower is acquiring a trading business and a lease, not a building. Lenders price and structure those deals accordingly, and borrowers who approach them expecting commercial mortgage terms are usually disappointed.
This article sets out what leasehold business finance actually funds, how lenders assess the lease and the trade, and what to prepare before approaching the market.
What is being funded
In a leasehold acquisition the purchase price typically breaks down into three components:
- Goodwill, the value attributed to the established trade, customer base, reputation and, in regulated sectors, the licence or registration.
- Fixtures, fittings and equipment, the tangible trade assets transferring with the business.
- Stock at valuation, usually settled separately at completion.
The lender’s security is a charge over the leasehold interest and the business assets, usually supported by a debenture and personal guarantees. Because there is no freehold to fall back on, and because a lease has a finite and diminishing value, advances are lower than on freehold commercial property. Loan-to-value on a leasehold business acquisition commonly sits well below what a freehold commercial mortgage would support, with the balance funded from the buyer’s own resources.
The lease terms that decide the case
Lenders read the lease before they read the accounts. The points that matter most:
Unexpired term. Funders generally want the unexpired term to exceed the loan term by a reasonable margin. A ten-year facility against a twelve-year lease leaves very little room, and most lenders will size the loan against the lease rather than the other way around.
Security of tenure. Whether the lease benefits from the renewal rights under Part II of the Landlord and Tenant Act 1954, or has been contracted out by the statutory notice and declaration procedure, materially changes the risk. A contracted-out lease means no statutory right to renew, and lenders price that accordingly or decline.
Alienation. The assignment and subletting provisions determine whether the lender can realise its security by selling the business on default. A lease with restrictive alienation provisions, or landlord consent conditions that are difficult to satisfy, weakens the security.
Rent review basis. Upward-only open market reviews, index-linked reviews and turnover rents each produce different affordability profiles over the term. A lender modelling debt service across ten years will want to understand what happens at the next review.
Repairing obligations. A full repairing and insuring lease on ageing premises can carry significant liabilities, particularly where there is a dilapidations exposure at expiry.
How the trade is assessed
Lenders underwrite serviceability from the business, not from the borrower’s other income. Expect scrutiny of:
- Three years of filed accounts and management information, with adjusted EBITDA after a realistic operator’s remuneration.
- Debt service coverage on a stressed rate, typically at a similar level to commercial property lending.
- Sector trend: staffing costs, energy costs and, in hospitality, the effect of National Insurance and wage changes on margin.
- Regulatory standing, including CQC or Ofsted ratings, premises licences and food hygiene ratings, each of which can be a condition precedent in its own right.
- The buyer’s relevant experience. First-time operators in regulated sectors face a narrower lender panel and higher deposit requirements.
The affordability arithmetic follows the same logic as commercial property lending, which we set out in what is a commercial mortgage in England and Wales, but with a shorter amortisation profile reflecting the wasting nature of the asset.
Structuring the wider funding
Few leasehold acquisitions are funded by a single facility. A typical structure combines an acquisition loan against goodwill and the lease, asset finance against the equipment, and a working capital line to fund the trading cycle from day one.
That last element is frequently underestimated. A business bought with every available pound deployed into the purchase has no buffer for a slow first quarter. Where the business invoices commercial customers on credit terms, a receivables facility can bridge that gap, as set out in our guide to invoice factoring. Where plant, vehicles or kitchen equipment form a large part of the price, funding them separately under asset finance preserves cash and can reduce the acquisition loan required.
With the Bank of England base rate held at 3.75% in September 2026 and commercial pricing broadly in the 5.5% to 9.5% range depending on risk, the cost of each element differs, and it is worth allocating the borrowing to the security that supports the best rate.
Timing and the practical sequence
Leasehold business transactions involve more parties than a property purchase: seller, landlord, lender, licensing authority and, in regulated sectors, the relevant inspectorate. Landlord consent to assignment is often the critical path item, and landlords are entitled to require references, accounts and sometimes a rent deposit or guarantee from the incoming tenant.
Starting the funding conversation before heads of terms are agreed, rather than after, allows the deal to be structured around what is actually fundable. Agreeing a price and then discovering the lease has eight years unexpired and is contracted out is an expensive way to learn the point.
How Giles Finance can help
We arrange acquisition and refinance facilities for leasehold trading businesses across hospitality, healthcare, childcare, retail and professional services. Our leasehold business finance page sets out the products available, and the commercial and corporate banking hub brings together our wider business lending material, including corporate banking and company loans. Where an acquisition needs to complete faster than a term lender can move, short-term funding with a documented refinance exit can bridge the gap, a subject we cover in bridging loan exit strategies. We act for clients nationally from offices listed on our areas we cover page.
Call 0208 088 2211 or use our contact page.
Business lending, commercial mortgages and leasehold business finance are not regulated by the Financial Conduct Authority. YOUR PROPERTY OR BUSINESS ASSETS MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON FACILITIES SECURED AGAINST THEM. Personal guarantees may put personal assets at risk.
Nothing in this article is legal or tax advice. Lease terms, statutory renewal rights and tax treatment depend on the specific documentation and individual circumstances and may change; take advice from a qualified solicitor and tax adviser before proceeding.
Giles Finance is a trading style of Giles Finance & Consultancy Services, authorised and regulated by the Financial Conduct Authority (FRN 726857).