“BANKS LIKE FRANCHISING” declares the current internet advert for HSBC. However, as the UK limps out of recession, is this really the case? Are banks lending to prospective franchisees?
“Yes” says Richard Holden, Head of Franchising at Lloyds Group, “Particularly to well established and proven franchises”.
Cathryn Hayes, Head of Franchising at HSBC explains that “In broad terms, franchising is a safer option than going into business on your own. A franchisee should have a tried-and-tested format to follow, training and support from their franchisor, and a network of fellow franchisees to speak to – so although franchisees own and operate their own business, they are not doing it alone”. This support, Cathryn says “means that banks are going to be much happier to lend to a start-up franchisee”.
To obtain funding for a franchise, the banks need you to prepare a business plan. The business plan is important for several reasons:
- It helps raise finance;
- It demonstrates to the bank that you understand the business opportunity;
- It is a useful working document for you going forward; and
- It acts as a benchmark allowing you to measure the future performance of your business.
The bank manager will always want to meet you to discuss your business plan. At this meeting, Richard says, the manager will be looking to address the items in their aide-memoire: CCCPARTS or CAMPARI.
Character or Character
Capital Ability
Capability Margin
Purpose Purpose
Amount Amount
Repayment Repayment
Terms Insurance
Security
Some of the questions which the bank manager will need answers to include the following:
Character: Are you trustworthy? Do you have a proven track record of repaying debt?
Ability/Capability: Are you up to the task of running the business?
Margin/Terms: What terms can the bank offer? If you present a risky proposition, the terms may be more favourable to the bank.
Purpose: Why do you need the money?
Amount/Capital: How much do you need? How much are you putting forward yourself? (Why should the bank give you money if you are not willing to stake your own?)
Repayment: How will you repay the bank? Do the projections stack up?
Insurance/Security: What security is being offered? Are there any gaps in your insurance cover that could lead to them being unable to repay the bank?
If you are looking to the bank for funding you should pay close attention to this banking mantra and make sure that your business plan is up to scratch.
Another comment Richard makes is that “Banks’ franchise departments need to evaluate the franchise opportunity before they consider providing financial assistance to prospective franchisees”.
This means that banks will look into how the franchisor has established the network and may check whether the correct support structures have been put in place by the franchisor. Richard warns against franchisors using consultants that employ an “off-the-shelf” approach to establishing their networks and instead advises franchisors to use consultants and advisers that have been accredited by the British Franchise Association, as “[such] advisers who are affiliated to the association must pass an accreditation process and demonstrate a track record of success in franchising before they can join”. So, from your point of view, you should not be afraid to ask your franchisor what advice they received in establishing their network and from whom this advice was obtained.
- Andy
