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Before committing to a decision to purchase a franchise, some careful
planning is required, in particular, how you will finance the purchase
of the business. For many prospective franchisees this usually means
taking a bank loan and their first port of call should be one of the
main banks that has a dedicated franchise department that can provide
finance for the purchase of a franchise.
The well-established BFA member franchises have
close connections with banks and other financial institutions, making
it easier to raise money for a franchise than for an independent
business idea. But careful financial planning is still needed.
Cathryn Hayes, national franchise manager at
HSBC, said: "You must be prepared to take a realistic view of what you
may be able to borrow, and your local bank manager will be able to
discuss the possibilities with you. Having established the start up
costs and borrowing requirements, you will need to look at the
potential earning power of the business. Does it justify the level of
investment and can you recover your investment?"
For an established franchise, most of the
major banks will lend up to 70 per cent of the start up costs. For new
franchises that figure will be closer to 50 per cent. Banks normally
expect the franchisee to contribute at least 30 per cent of the cost
of the franchise, which should be non-borrowed.
Most industry experts agree that borrowing
money to finance the purchase of franchise has become easier. Mark
Scott, national franchise manager at NatWest, said: “There is a more
choice for those requiring finance. Franchisees can have fixed or
variable rate loans, while a flexible business loan allows them to
draw it down in stages; for example if they are having premises built,
they may initially want to access only a proportion of the loan.
Capital and investment repayment holidays can be arranged, and with
some seasonal businesses we can authorise a reduction in repayments
during the quieter periods.”
Loan security is usually provided through a
second mortgage taken out on property, but it can include a charge
over stocks and shares and some insurance policies. If no security is
available the bank can secure a guarantee, up to 75 per cent of the
amount borrowed, from the Department of Trade and Industry's Small
Firms Loan Guarantee Scheme.
Prospective franchisees should prepare a
detailed list of their personal expenditure, including things like
mortgage payments, household bills, and outstanding loans etc, in
order to estimate how much money they need to take out of the business
in order to live.
They also need to prepare a business plan,
which includes cash flow forecasts for the first couple of years of
the business. This is vital for securing finance from the bank, and a
good franchisor should be willing to help with the preparation of it.
USEFUL LINKS
HSBC
NatWest
Lloyds TSB
Royal Bank of Scotland
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