Banks make profit in recession – can franchise business benefit?
Nick Strong - Franchise recruitment advisor
At the beginning of August Barclays have announced profits for 2009 at nearly £3 billion pounds.
Across the group, Barclays income has soared 37% to £16.3bn, more than enough to absorb a rise in bad debts caused by the worst global recession since the 1930s.
Because other banks have suffered more from the recklessness of their lending and investing, Barclays has been able to expand its share of the market.
But although Barclays managed to survive last autumn’s banking crisis without a direct injection of capital by taxpayers, and it wasn’t semi-nationalised like Royal Bank of Scotland and Lloyds, it has benefited from significant loans and guarantees from the public sector.
HSBC profits from gobal trading are down half but the bank has still made £5 bn profit during the current recession. HSBC gained from record investment banking profits of $6.3bn during the first half of the year.
Franchise business benefit from bank lending
Clearly the gains made by the banks at present focus around the investment banking sector. So can franchise business benefit from the recent profit strengthening of the banking sector?
The key benefit that franchise business offers to banks is its stability and trading success. Over 90% of franchise owners run profitable businesses according to the most recent British Franchise Association/Nat West National Franchise Survey. This is good news for lenders as successful repayment of loans is high.
The franchise department departments of the leading banks, that includes HSBC, Lloyds TSB, Nat West and RBS, have announced at British Franchise Association meetings that they have capital to invest in franchise business development.
The key fact to note is that banks are looking at lending to franchise business owners with far more scrutiny in 2009. The franchise brand and new outlet business plan must be robust and well researched to achieve funding offers from the banks.
To research franchise businesses for sale visit – www.SelectYourFranchise.com.
Tags: banks, Barclays, franchise business, hsbc, lending, lloyds tsb, Nat West, nick strong, profit
Writing a franchise business plan
Nick Strong - Franchise recruitment advisor
At a recent meeting of the Affiliates of the British Franchise Association I attended the bank representatives expressed the importance of writing a robust franchise business plan. All bank representatives including those from RBS, NatWest, HSBC and Lloyds TSB franchise departments agreed that funds for buying and growing a franchise are available.
All bank representatives stressed that the business plans submitted by franchisors or franchisees must demonstrate clear understanding of the market they are in and how competition and the current economic climate might effect trading projections.
In addition to the franchise business plan the banks will look closely at the performance of franchise owner accounts it holds. This information gives a strong reflection of how the system is doing over all and does help the bank to decide whether to offer funding or not.
Banks look more favourably on a case by case basis where a franchise system has been accredited by the British Franchise Association (BFA). The BFA exists as a standards body primarily to protect would be franchise owners from franchise systems that lack the robustness to support franchisee businesses.
Franchise business planning software is available from the banks -
Most franchisors will help their franchise owners to prepare a business plan. They do this because they understand their system better than anyone else. The franchise owner should do their own homework and demonstrate ‘ownership’ of their own franchise business plan. Using the free software below can help you prepare.
http://www.hsbc.co.uk/1/2/business/info/resources
http://www.rbs.co.uk/business/banking/g2/planning.ashx
Banks raise cost of borrowing – franchise business comment
The chancellor is to quiz bank bosses over how much they charge small firms for loans, saying he is “extremely concerned” their rates may be too high.
Alastair Darling said the cost of loans seemed to have risen, despite the UK’s record low base interest rate of 0.5%. He said that “banks had a duty to restore lending levels, saying the government did not rescue the banking sector “out of some charitable act”. He has called a meeting with bank executives in Downing St on Monday.
Some good news is that banks are using the new Enterprise Finance Guarantee scheme to help small and medium size franchise business to start and grow.
Even though bank charges will ideally come down the use of the EFG is good news for everyone thinking about buying and building their own franchise business in the UK.
Under the EFG scheme the government will guarantee 75% of any loans made, with the bank covering the remaining 25%. The guarantees will mean that the government, or taxpayers, will pick up three-quarters of the the tab for any bad loans.
In total, the Enterprise Finance Guarantee Scheme will see the Government provide £1 billion of guarantees to support to £1.3 billion of bank lending.
Enterprise Finance Guarantee Scheme – details
- The Enterprise Finance Guarantee will apply to loans, and can also be used to convert existing overdrafts into loans to enable businesses to free up their current overdraft facilities to meet working capital demands.
- The Enterprise Finance Guarantee is available to businesses with an annual turnover of up to £25m. Firms can apply for loans of up to £1m for a period of up to 10 years.
- The guarantee will be available through the following high street banks; Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds TSB, RBS/Natwest and Northern Bank. It will become available from other lenders if they wish to apply.
If you are considering buying a franchise or want access to additional capital to build your existing franchise business I would advise you to contact the franchise departments of the above mentioned banks.
Mr Darling also reiterated that VAT will definitely return to 17.5% from the current 15% level at the end of the year. The rate of VAT was reduced to 15% on 1 December 2008 to help boost retail sales.
