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Loan Types
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Function centre loan
You can make money with a well-run function centre, but you may need finance to get your venture off the ground. Find out how to apply for a function centre loan.
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From personal events such as weddings and birthdays to community events such as reunions, fundraisers, corporate conferences and seminars, function centres will always be in demand. A well-run function centre in a good location can be a lucrative business and can also potentially provide a lifestyle change for an owner-operator.
The profitability of a function centre will come down to your ability to choose the right function centre to suit your needs and your ability to cater to the requirements of your target market as well as getting the best loan to suit your individual circumstances.
Business loans to consider for your function centre
Choosing the right function centre
Location and purpose
Location is very important when it comes to function centres, and one of the first decisions you will need to make is whether you are looking for an inner-city location or a more rural setting. Your choice of location will vary depending on a number of factors, and each location type will cater to different groups of people.
Inner-city function centres typically have the following characteristics:
- Can be more expensive to purchase
- Will attract greater ongoing demand
- Will put you in a high competition business arena
- Are highly sought after due to their close proximity to public transport, accommodation and restaurants
- Are best placed for corporate events
- Can present problems for venue attendees with expensive or hard-to-find parking
Rural function centres typically have the following characteristics:
- Can offer a desirable lifestyle change for an owner-manager
- Will attract a niche market
- May attract fewer bookings, yet individual bookings will tend to be larger and more profitable
- Will attract personal and community events including weddings, reunions, fundraisers and local meetings
- Can offer a far greater venue capacity for individual events
- Can be highly sought after for their fresh air, natural views and quiet environment
- Can offer relaxed amenities including easy, free parking
Zoning, permits and licences
It is essential to understand the zoning of the land before purchasing a function centre. Zoning can change over time, and the current owners may not be aware of the current zoning status of the property. Zoning will affect whether you can serve food and alcohol (essential for a function centre) and whether you can offer accommodation. They can even impose noise restrictions during certain hours. It is essential that you check with the local council to clear up any questions about the property's zoning.
Additionally, consider the licences and permits held by the current owners. Occupancy licences will specify the number of people permitted in the venue at any one time, while food and liquor licences are mandatory before you can serve anything to guests. Annual fees are payable on liquor licences, which will generally be in the thousands of dollars and will depend on the occupancy of the venue. Applications for new licences can take up to eight weeks to be processed and approved, causing considerable downtime should the function centre not already have an existing liquor licence.
Given that licencing and permit requirements can vary significantly, you may want to have a lawyer or conveyancer check the current status of the function centre.
Finding finance to purchase a function centre
How do lenders view applications for a function centre loan?
Lenders are generally quite conservative when it comes to extending finance for a function centre. Since the majority of function centres are purpose-built, they are considered specialised commercial properties, and you will need a strong application in order to get your loan approved.
A function centre's potential relies on how the business is managed, so the lender will primarily be concerned with the relevant business experience and financial situation of the person managing the function centre, which could be either the existing tenant or the borrower. The lender will also take into account factors such as the function centre's location and facilities.
Standard loan terms
Since function centres are specialised commercial properties, lenders consider business loans for them on a case-by-case basis. Approval could come down to the financial circumstances of the borrower, the financial history of the function centre itself and the overall strength of the finance application. That being said, the following loan terms could apply:
- Loan amount. You could get up to 60% of the value of the property if purchasing a freehold function centre or up to 50% of the value of a leasehold business. This amount could increase if you apply for a business loan with a guarantor or offer residential property as additional security for the loan.
- Loan terms. You can typically get a loan term between five and ten years. This could increase if you offer residential property as security for the loan.
- Interest rates. Interest rates vary, and commercial lenders do not generally advertise their interest rates publicly. The interest rate offered will largely depend on the strength of your application.
How to apply for a function centre loan
The application process for a function centre loan can vary depending on whether you will be running the function centre yourself or whether an existing tenant will continue managing it.
If you intend to run the business yourself, you will need to present a strong application that highlights significant business experience in a similar role. Lenders will look for at least five years of managerial experience in a successful function centre or comparable hospitality role. You will also need to provide a comprehensive business plan, including cash-flow forecasting. You should consult a qualified accountant when creating a business plan.
If the current tenants will continue to manage the function centre, you will need to provide full audited financial documentation for the existing business for at least the past three years. The lender will be looking to see whether there are any hints that the current managers are experiencing any kind of financial hardship. Strong applications will show stable, long-term tenants and a well-run function centre in a strong financial position.
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