Money talk
Is it necessary to use a bank dedicated to franchising? Kevin Noble of the RBS Group reveals the step-by-step process of securing bank funding
Many new franchisees are often reluctant to approach a bank for financial support. This can be as a result of many factors, perhaps adverse media attention, a perception that banks are closed for business or a previous
bad experience.
Without hesitation, I would recommend that a new franchisee approach at least one bank with a dedicated franchise team. They understand your concerns and that time is often the critical factor.
As such, preparation is the key to ensure that the first meeting with the bank makes the best possible use of their expertise and the time available during the meeting.
The key to success is the initial contact:
- Seek advice from the franchisor - they have a vested interest in your successful application
- Contact the bank's central franchise team
- Next you will be introduced to a local franchise manager - they will understand the franchise and the local territory
- If you approach the local branch, this may affect the chances of success and will certainly slow things down
- Ensure you have been provided with a list of information that is required and a suitable meeting time
Provide the completed information to the local manager prior to the meeting so the meeting can be used to fill in the gaps.
In order to help the bank assess your application correctly and speed up the lending decision, we ask that franchisees provide some key pieces of information to demonstrate what skills you are bringing to the table, your chosen market and your day-to-day finances.
The business plan:
When a new franchisee is preparing for their visit to the bank, it is important that they do not complete a business plan simply for the purpose of borrowing money. A well thought out business plan should not sit in the bottom draw of the desk collecting dust once the finance has been agreed. It is designed to assist in the initial evaluation of the franchise opportunity, act as a road map as to where the business is setting out from, the final destination and how they propose to get there and an early warning system if things don't go to plan. During the completion of the plan, it may be appropriate to seek input from a solicitor or accountant. As an absolute minimum, it should be referred to friends or family who will provide an impartial view.
The key areas to focus on:
You, the franchisee. A CV is perfect, however, ensure it contains evidence of the skills you have developed that will add real value to the business
The start-up budget. The list must include all items such as the franchise fee, equipment and property costs, and VAT
- The level of your cash stake. As a rule of thumb, this should be a minimum of 30 per cent of the start-up budget
- How you are going to generate sales and customer interest?
- How you are going to retain customers?
- Details of your competition
Financial projections:
These will provide an insight into how are you going to repay the funds provided (as well as paying the bills and your salary) and is the key to understanding what level of borrowing is right and sustainable for your business. It will also help you understand the likely impact of changes to income and costs on your business. These usually come in the form of a cash flow forecast and operating budget (profit and loss projection). It is recommended you seek professional advice. It is useful to provide details of any assumptions that have been made to support the projections.
Your personal finances:
- A detailed breakdown of all loans, credit cards and mortgages together with property values and savings and investments.
- Details of any security that you wish to offer.
- A personal income and expenditure statement to verify what salary you need to take from the business
- Six months of personal bank statements - if you do not bank with the bank, this is the best way to prove you operate your financial affairs in a tidy fashion!
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