Three Tips to increase your chances of getting franchise funding
The poor economic climate means that the lending environment has got tougher. This applies whether you need money to buy a franchise or need cash to improve your existing franchise. Does this mean there’s no chance of getting funding? Not quite. While the final decision lies with the bank, there are ways to improve your chances of getting a loan approval. Here’s our advice on what you need to do.
3 Tips on what potential franchisees can do to get funding
1. Have a Business Plan
No banker will give you a loan if you don’t have details on how you plan to run your business and where you’re going with it. A business plan is an essential requirement for going into business. It should have details such as:
- A background on the business;
- The strategic vision and goals of the business, and
- The financial projections detailing how the business will reach its goals.
If you don’t know where to start with drawing up your business plan, have a look at whichfranchiseank.co.za for guidelines on what should be included in this plan.
2. Invest your own money into the business
You can’t expect outside funders to give you money unless you’re willing and able to contribute some cash of your own. Banks want to see that you’ve taken some risk as well. If you contribute, they’ll see your commitment to the business. And that you’re able to handle your financial affairs well.
3. Be realistic with your projections
Returns are an important part of any investment decision. Your bank wants to see that you’ll be able to repay the debt, without too much discomfort. You should be prepared to grow your business in stages and be conservative about how much revenue you can generate in a year. Unrealistic financial projections will not be taken seriously. Remember that even the most diligent financial planning won’t be able to account for a few unexpected expenses and you should provide for these contingencies.
3 Tips on what existing franchisees can do to get funding
1. Never understate profits
Hiding profits can cause cash flow to be underreported. The bottom line is, lenders want to see existing cash flow before extending additional credit to a business. Without cash flow, lenders can’t extend additional credit that would create a drag on cash flow. Hiding cash flow is not only illegal, it’s a poor business practice. You will get caught out when you apply for finance. Be upfront with the lender about why you need funding and the whole picture of the business. Insufficient cash flow is a flaw that even most bullish lenders can’t overlook.
2. Prove you’re worthy of investment
As an existing franchisee, you must be able to answer questions like:
>How much money do you need?
Remember, whether you’re starting out or have an existing business, a lender wants to know how much money you need to get to the next point. You need to define what that next point looks like, and if you’ll be able to make the best use of the funding to get there.
>How will you spend the money?
Show the bank your plans, contingencies and demonstrate you’re worthy of that investment. In addition, have a solid financial model built to demonstrate your ability to service and satisfy the loan. It’s important to realise that banks look at both the entrepreneur and the business. How you conduct your personal financial affairs is also important.
3. Return documents on time
Sometimes, it’s the small things that count. If a lender asks for additional information, supply it on time. This financial information is important and helps the lender make his decision.
It reflects well if you’re punctual with sending documents and fill in the necessary paperwork accurately. You’re presenting a case for business finance, so try to present your best case.