Franchise Advice


“Keeping your personal credit score in good shape is important”


borrowing to the need or purpose. So, for example, if you need to buy a new van or some equipment it is arguably better to fund this by leasing rather than use up your bank loan as that is where you will get your short-term working capital. Sometimes people don’t like leasing because they want to own the asset from day one but I would ask is that really important? What really matters is that you have use of the business asset in order to generate income and if you deal with a reputable Leasing company you will still be able to gain ownership of the asset at the end of the leasing term subject to a small additional payment. Another key piece of advice is don’t wait until you desperately need help If your business is in trouble through lack of cash or working capital. At that stage the chances are that most lenders will say ‘no’ because the risks of lending to you then will be viewed as far too high. A much better approach is to be more proactive and forward-planning by using a cashfl ow forecast and a ‘worst case scenario’ approach, to make sure you


W


hen thinking about borrowing money for your franchise my fi rst recommendation is look to match the method of


have a ‘cash safety net’ just in case. This may take the form of either a business overdraft facility where you only pay interest on any money you borrow, a loan where you keep some of the funds in a separate account ‘just in case’ or higher limits than you actually need on business credit or charge cards. Yes, you will probably end up paying an ‘arrangement fee’ for the privilege but my advice is that it is worth it and you should look at this as ‘an investment’ rather than a pure cost. If your business is not new, the lender will need to see the last few years’ accounts to check past and current profi tability and understand from the balance sheet what the business owns and what the business owes (its assets and liabilities). It is important that there is a reasonable balance between these two things and that the business is not over- borrowed and vulnerable to the high level of repayments and interest it needs to pay. If, however, you are very stretched and need to get out of trouble then you will undoubtedly need a business plan in order to demonstrate what you are going to do with the money, how you are going to do it and how you will pay it, and the related interest, back to the lender within a reasonable time-frame. A projected profi t


and loss account and a monthly cashfl ow forecast is a must in order to achieve this. Keeping your personal credit score in good shape is important. If you have not checked your personal credit record recently then it makes sense to do this and deal promptly with any issues. If you don’t you may fi nd that your request for your business borrowing is declined simply because of this.


It is also likely that you will be required


to provide your bank statements (business and/or personal) to evidence the fact that you operate your bank accounts well, within any agreed borrowing limits and that you have not had any of your payments reversed or ‘bounced’ due to a lack of funds. So do work on carefully monitoring your bank activity so that none of these things cause you problems with future loan requests.


So all the best in 2017 and Happy Borrowing! About the author


Chris Roberts, is a director of Franchise Finance Limited which arranges fi nance for franchisees and franchisors, prepares business plans and runs business and fi nancial workshops through their Business Training Academy.


April 2017 | BusinessFranchise.com | 45


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