Setting up a franchise and securing a small business loan can sometimes be daunting. Banks are here to help and some have a dedicated team of professionals who are available to help both new and existing franchisees with their unique financial requirements, no matter how big or small.
The following tips are a guide to assist you with your loan application, to ensure you have the best lending solution for your business.
1. Preparation is key
It is best to arrange an appointment with a small business banker or specialist to discuss your financial situation and business loan requirements.
To ensure you have a great meeting with your banker, it is recommended to bring the following:
- Supporting documents – bring along records of your current financial situation and borrowing history. This includes: bank statements, superannuation statements, previous loan documents and any other information you think will be relevant. It is also advisable to bring along a draft copy of your franchise agreement to talk through.
- Security – some franchise systems have arrangements in place with lenders to accept the new business as partial security. Ask your franchise contact about the options in place so you can discuss with your lender.
2. Know what you need
Be prepared to talk to your lender about the amount you think you require and how long you think you might need it for, to ensure the lender can help you find the best loan for your business. Some things to consider:
- How much money do you think you will need during the start-up phase?
- Do you require the money in advance, or do you have some savings set aside?
- How long do you think it will take you to pay back your business loan?
- What security do you have available to support the loan? This can be a combination of cash, real estate or even the franchise business.
3. Spend time on your business plan
The more confident you are with your business plan, the better the lender will be able to understand your business needs. The business plan should be clear and succinct, regardless of length; a longer business plan doesn’t necessarily mean a better one. You need to make sure that you have all of the relevant information in the plan, presented in an easy to understand format.
Ensure you have:
- Thoroughly reviewed your existing business plan – make sure that it demonstrates up to date and accurate information that is relevant to your franchise.
- Included a clear financial plan – be prepared to talk through how you intend to grow the business within the franchise model in order to meet your personal and business financial goals.
You should consider:
Adding a PEST and SWOT analysis to your business plan:
- The PEST (Political, Economic, Sociological and Technological) analysis will show that you have a good understanding of the environment that you are operating within, including any benefits and potential barriers that you could experience.
- The SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis will show that you have a realistic understanding of how your business is positioned within the market to capture the value that you hope to gain from the lending.
Adding performance metrics to your plan:
- Historical data – showing the past trends of business activity.
- Projected future outcomes – showing the minimum standards for success that you have for the business moving forwards.
The business plan should include enough information to show that you understand what the opportunities and threats are within your industry, and what might be a barrier to success. Ensure you have a good understanding of who your competitors are, their customer value proposition, their target market and how they communicate to their customers.
4. Know the market
As a current or future franchise owner, you will have access to a broader network of advice and learnings. It’s important to not only know your competitors, but also review the activities and performance of other stores in your franchise network. You can use this information to assess what has worked, and what hasn’t, and adjust your business plan accordingly.
5. Find a lender
The franchise buyer should consider many things when seeking a lender:
- Does the lender have an existing policy for the franchise you are with, or are buying into?
- Does the lender offer a preferential interest rate or ongoing fee due to an existing relationship with the franchise?
- Will the lender offer you a relationship banker with an understanding of your industry?
- Does your lender offer ongoing support via forums, networking events, access to industry specialists and data?
6. Research your options
While your lender will be well-placed to work with you on your finance options based on your situation, it is worth coming to the initial meeting prepared with research, and your own ideas on which type of loan will be the best for your current situation and day-to-day business activity. For example, Westpac offers three types of loans for small business, which suit a range of businesses in different stages of growth:
- Business Overdraft – helps cover invoices and wages, pending receipt of cash flow
- Business Loan – longer term finance to purchase or grow your business
- Business Equity Loan – a variable rate with flexible line of credit
7. Final preparation
Practice confidently talking through your business plan ahead of time so that you can remember the key points, and explain them clearly and concisely. Try to identify issues or gaps in the plan, and practice responding to the most likely questions you will be asked. The more knowledge of and confidence in your business plan, the more likely the lender will be able to identify the right financial solutions for you and your business.
* The information provided does not take your financial position into consideration and should only be used as a guide.