19
Funding
According to the British Franchise Association,
59 per cent of people need to borrow money to buy a
franchise, with 36 per cent of them requiring more than
£50,000. The average amount is £49,000. Banks remain
s
p
e
c
i
a
l
f
e
a
t
u
r
e
the main source of borrowing (84 per cent).
What does the process involve, from a potential maximum debt-to-equity levels), but we will lend
Graeme Jones,
franchisee’s initial interest to being granted up to 70 per cent of all costs and also bridge any
Head of Franchising, Business
funding for a high-level investment franchise? VAT that is payable at the outset, which is repaid
and Commercial Banking,
RBS/NatWest
The process is largely the same for all franchise when the VAT refund comes through. As said
requests. The customer meets up with one of our before, it’s about whether the business plan and
“Where larger
specialist relationship managers, who will have an our experience of the franchise demonstrates that
investment
understanding of how the franchise system and the borrowing will be repaid. As the franchisee
other existing franchisees are performing, what expands and perhaps takes on more outlets or
franchises
level of fi nance is typically required and what the more territories, we may look to lend a higher
differ is that we business plan should comprise of. percentage of the costs associated with the
usually look for
The franchisee really needs to demonstrate expansion, as we can also rely upon the existing
that they own the plan and have researched their cash flow.
some security
local market, as well as how they intend to ensure Is high-level investment franchising still a good
to support a successful launch of the franchise and how they option in the current financial climate?
the facilities
will build upon that. The bottom line is can they Whether it’s high level or not, the key issue in
demonstrate that the business will be able to the current climate is around how the business
extended.”
service its debt and repay any loans? Where larger franchise system is fairing – what is the experience
investment franchises differ is that we will usually of existing franchisees? Some franchise systems
look for some security to support the facilities have suffered, while others have done very well –
extended. On occasions, the applicant may not it’s all about the model, the support, the product
have any suitable security to pledge, which is where and brand.
the Enterprise Guarantee Scheme comes in. We Is a franchise statistically a safer/more successful
at RBS/NatWest lend more money under this investment than a start-up?
Government scheme than any other bank, and I see Statistically, franchising does appear to be safer.
it as a very important part of our offering. The 2008 NatWest/bfa survey reported that 90
What is the percentage split between the per cent of franchisees were trading profitably.
potential franchisee’s own capital investment and Where we understand the franchise system and
how much the bank willing to lend? where it demonstrates a successful track record,
This does depend upon the track record of we will lend up to 70 per cent, which is typically
the franchise and how much the franchisor would more than you would be able to raise for a
expect to see a franchisee put in (a number have start-up.
www.businessfranchise.co m April 2010
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