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Franchise Advice


Bank on it W


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


hen 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 finance and should provide a useful insight, making that first meeting with your bank an easier experience. Potential franchisees are likely to be


considered more favourably for finance 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 figure will probably be around 50 per cent. With this in mind you should approach your bank having considered the following:


“Potential franchisees are likely to be considered more favourably for finance than a conventional start up”


Person HSBC carries out a full review of your background and reliability; your training, qualifications, track record; financial resources and suitability to run the business. A franchisor will also look at this to ensure that you are a suitable franchisee.


Amount How 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 profits after allowing for all your other financial commitments? Or from the sale of an asset? Does the cashflow forecast show that you can afford to repay the loan? What assumptions have been made in the cash flow 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 finance 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 cashflow forecasts for the first two years of the business, together with financial forecasts to support your request for finance. This is a vital document to obtain finance from the bank. Your franchisor will probably help with this, but you need to ensure that you understand the figures and own the business plan. n


HSBC


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, call 0800 234 622 or go to www.hsbc.co.uk/franchise


30 | Businessfranchise.com | February 2012


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