How to keep funding secure

The foundation of any successful finance request from a franchisee is the business plan and financial projections Kevin Noble advises

In many cases, whilst the franchisee has invested time in highlighting the benefits and strengths of the franchise system, they tend to forget the most important area, ie, themselves, which is key to securing funding. Here are the questions you need to ask yourself to secure your funding.

How can I demonstrate that I am the right person for the franchise?
Simply put, the individual’s personal skills and ability to manage their personal finances. These ae vital in assessing lending application. It is worth mentioning that these considerations will be useful to the franchisor, they will be asking whether the person sitting in front of them has the drive and commitment to complement the training and support provided and, equally important, to understand whether there any financial pressures in the background that might affect the future of the business or their ability to raise finance.

How can I demonstrate that I will add value to the franchise and ensure business success?
Prepare a CV. It is important to consider the content. A bank is not looking for pages of achievements, but facts that will add weight to the application. Whilst historic qualification are important, the franchisee should explain how these will provide additional benefit to the franchise operation.

How can I demonstrate my financial strengths?
There are four key financial areas – housekeeping, contribution, living costs and assets, and liabilities. The easiest way to demonstrate this is to present the bank with statements relating to banking accounts.  In general, if not a customer of the bank then the latest six months’ personal bank statements will be required. The bank is looking to understand how the account is operated, whether there are any problems such as unpaid cheques or unauthorised overdrafts and what the monthly bills are.

The ability to provide the contribution required to get the business off the ground needs careful consideration. As a rule of thumb, a bank with a dedicated franchise team will provide funding up to a level of 70 per cent of the total start-up costs and working capital. The franchisee must calculate the total of all costs, verify with the franchisor and ensure they have at least 30 per cent of non-borrowed contribution.

When looking at projections, the bank is expecting the new business to demonstrate that it can meet both its loan repayments and the franchisees salary, the amount that the franchisee will need to take from the business to meet all their outgoings. Banks will provide an income and expenditure statement that can be completed, this provides an assessment as to whether the business can indeed sustain the lifestyle that the franchisee is seeking. It should also take account of other incomes that the family receives.

All banks need to understand and verify how much debt there is in comparison to the assets, ie, HP, personal loans, mortgages and credit cards against the value of your property. Again banks will provide an asset and liability form that you can complete. It should be borne in mind that a bank does not ask what assets you have simply to see if there is security available. It is as important to understand whether you have accumulated more assets than debt and how they compare.

Kevin Noble is a director at NatWest  and RBS. For more information contact kevin.noble@natwest.com.

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