Pointers for franchise banking

So you’re ready to make that next investment. It may be the first franchise you have ever purchased, or it may be some additional capital requirements for an existing franchise. Then again, your franchise experience may have been so good that you’ve decided to launch out again and purchase another site.

No matter what the reason, you are about to make a large investment, and possibly some of that investment may need to be financed. While the big decision is the purchase, equally important is the way you structure the capital around that purchase. There are lots of different options.

How much do you need?

Having made your buying decision, the next step is to work out how much capital will be required for the investment. If you are buying an asset, such as a piece of plant or equipment, this may be reasonably straightforward. On the other hand, if you are buying a first-time business or an additional business, there may be a series of add-on costs that you need to allow for.

Too often people look at the headline number of the asset or the investment and forget about the additional costs that may be required. These additional costs could be things like legal fees, stamp duty, installation costs, even the cost of funding the GST while you are waiting for the refund of the tax credits. If it is a new business, there may be additional funding requirements for working capital while you get the business up and running.

Your money or their money?

Once you know the amount of funds required, the next question generally asked is how much of your own money should you use and how much should you borrow? There is no one answer that will always be correct. What will the banks offer?

Walk down any main street, open up a newspaper, or turn on your TV and it won’t take long to see at least one of the major banks advertising their wares. All of the majors are out there today competing for your business, and most of them have established specialist areas in the small-to-medium business market. Realising that small-to-medium business is attractive and profitable, they want your business.

What the banks will look for

Having talked about what the banks will offer, it’s equally important to understand what they will look for. While they are all keen to lend money, they are also looking for the better quality deals, and it is those better quality deals that typically will command the best rates and terms.

Going to your bank well prepared will always assist in this process. The first thing the bank will look at will be the quality of the franchise. If you are going to them with a known franchise and a known brand this will assist your cause. They may well already bank a number of other similar franchisees. This does not mean that a new franchise will not get support. It simply means that they don’t have the established history behind them where the banks will have a level of comfort on the franchise business model and the past success of that franchise.

Time to make the decision

You may have only spoken to one bank or you may have spoken to several. Ultimately, you need to make the decision as to which bank you are going to deal with, the loan structure that you are comfortable with, and all of the other facilities being offered.

Don’t make the decision on price alone. Price will be important and certainly needs to be competitive, however, you also need a financier who can provide you with the other support and facilities necessary to run your business.

There is much more information available regarding Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.