Bank on it

Cathryn Hayes of HSBC gives a step-by-stepguide on how to approach your bank for finance

When you’re planning a new business venture, you want more than just a bank account, it’s also about creating strong, supportive relationships. Buying a franchise is probably one of the most important decisions you’ll ever make. For many, one of the biggest hurdles is approaching the bank for finance. You will need to research your chosen franchise thoroughly, making sure that it is the right one for you and that you are fully aware of what is involved.When you take up a franchise, you are entering into a long-term business relationship with the franchisor, so it’s extremely important that you check the background and business performance of your prospective franchisor. The following outlines HSBC’s basic approach to assessing a request for fnance and should provide a useful insight, making that frst meeting with your bank an easier experience.Potential franchisees are likely to be considered more favourably for fnance than a conventional start-up. For an established franchise, most of the major banks will lend up to 70 per cent of the start-up costs, for new franchises the fgure will probably be around 50 per cent.  

With this in mind you should approach your bank having considered the following:

Person
HSBC carries out a full review of your background and reliability; your training, qualifcations, track record; fnancial resources and suitability to run the business. A franchisor will also look at this to ensure that you are a suitable franchisee.AmountHow much will you be able to borrow? Prepare a full list of your personal expenditure: mortgage, hire purchase, household bills, and so on. This will show how much money you will need to take out of the business in order to live.

Repayment
It is not in a bank’s interests – or yours – to lend you money unless we think that you can repay it and we will therefore ask a number of questions on this subject. Will repayment come from future trading profts after allowing for all your other fnancial commitments? Or from the sale of an asset? Does the cashfow forecast show that you can afford to repay the loan? What assumptions have been made in the cash fow forecast? What level of sales are needed to break even and is it achievable? Is there a contingency plan for any setbacks?

Security
What security can you give to back up your loan? You might have a life policy with some value, or have equity in your home. It is recommended that you take independent advice from your solicitor before you provide security. If no security is available, you may be able to attain fnance under the Government’s Enterprise Finance Guarantee Scheme, if your business is eligible. This is a government-backed scheme to guarantee 75 per cent of borrowing where security is not available and where a lack of security is the only bar to a bank lending the money.

Business plan
You will need to prepare a comprehensive business plan and cashfow forecasts for the frst two years of the business, together with fnancial forecasts to support your request for fnance. This is a vital document to obtain fnance from the bank. Your franchisor will probably help with this, but you need to ensure that you understand the fgures and own the business plan.

For tools, checklists and practical information to help you and your business, visit HSBC’s Knowledge Centre or get in touch for a free copy of HSBC’s comprehensive guide to starting a franchise.

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