Franchise funding from small business loan guarantee scheme
Now that the government has released its plan to guarantee £20 billion of small and medium loan guarantees the banks should respond positively to lending to franchise business. All the main banks that have franchise departments have stated that they have a positive approach to franchise funding during 2009.
The banks are keen to work with and fund proven franchisors and well prepared franchise buyers. As far as the banks are concerned a proven franchise business is one that fits at least the following criteria:
- Ideally the franchisor will be a member of the British Franchise Association
The franchisor will have a good and open relationship in existence with the franchisor
The bank will be happy with the franchisor’s financial performance
Looking at existing customer accounts The bank will be happy with the franchisees financial performance
A prepared franchise buyer for the banks is a person, partnership or business that has a well prepared business plan. The plan will demonstrate the franchise buyers understanding of:
- The market they are wanting to enter
Local competition
Substantiated argument for potential projected revenue claims
Why the franchise is right for them and the territory being offered
How the franchise buyer plans to secure the loan funding
How much liquid capital it will require to run the business
How the new franchisee will manage cash flow and personal living expenses during the first year of trading
The small business loan guarantee schemewill be used by the banks when the banks are happy with the franchisor and the business plan but the franchise buyer has insufficient equity to secure loan funding. The bank will look for an element of risk from the franchise buyer even when using the government’s loan guarantee scheme. This is because personal risk on part of the buyer is considered an essential ingredient to make a successful franchisee. it is believed that people work harder and better when they are personally at risk. This clearly helps drive the new franchisee to success.
The banks are very keen on lending to new and existing franchise business because the NatWest/BFA franchise survey confirms that year after year that over 90% of UK franchisee run businesses are profitable. That means that a new franchise business have over 90% success expectation which is by far better than the statistics of go it alone entrepreneurs.
Franchising is a proven way to increase personal succcess in self employment. The banks like it and in many cases franchise funding from the small business loan guarantee scheme may be used during 2009 to fund franchise business development.
