Richard Holden
Head of Franchising
Lloyds TSB Commercial

The fact is that although banks specialising in franchising - such as Lloyds TSB - remain positive about franchising, in general banks will continue keep to a policy of selective financing in the current economic climate.

Anyone investing in a business needs to ensure they are being realistic when approaching a bank for finance – and that is especially true given the current market. Individuals considering franchising need a significant capital stake to invest in any opportunity. For a well established franchise the investor will need to commit at least thirty percent of the set up costs and working capital requirement. This is their personal commitment to the business and ideally this would come from savings rather than personal borrowing. For less established franchise opportunities the bank will ask for a greater capital input from the prospective franchisee.

Lenders also prefer any borrowing to be secured against a residential property. It’s important to remember that given the current state of the housing market, property valuations are often significantly lower than owner’s expectations and that can have an effect on the level of financial assistance the bank is able to offer. Any bank will also carefully review personal expenditure requirements of business customers to ensure that they are realistic. As always, a well presented business plan will help raising the required finance from a lender.

For someone looking to invest in a franchise opportunity we offer this sound advice. Consider franchises that have a successful track record and that are well established. Franchise systems that are proven over a number of years are viewed by the banks as less risky than franchises that have not been tried and tested. The British Franchise Association (bfa) listings pages in this magazine or the bfa’s website www.thebfa.org are good starting points for your research.

It is important not to be under-capitalised going into business, however it is equally important not to over-stretch yourself financially by taking on a commitment which could prove difficult to manage. Consider a capital repayment holiday at the outset of the loan to give yourself some breathing space and ensure that you have a contingency reserve to fall back on in case the business takes longer than anticipated to get up and running.

Even if you are looking to invest in the strongest franchise opportunity your request for financial assistance may be turned down by the lender if you suffer a shortfall in both investment capital and security. Franchisors are becoming more aware of the financial support that is available to their franchisees however speak to the bank’s franchise department to fully understand the level of assistance that they could offer you. Banks have various finance options available such as Asset Finance and Factoring which could reduce the amount you need to borrow directly from the ban

Top Tips

• Thoroughly research the available franchise investment opportunities
• Look for franchises that have been proven over a number of years
• Ensure you have sufficient capital to invest in the business
• Be prepared to offer the bank security to cover the finance requested
• Speak to the bank’s franchise departments for independent advice
• Don’t over-burden yourself with your financial commitment
• Have a contingency reserve of funds to fall back on if required