ADVICE FOR FRANCHISEES

franchisor will often assist you with, but you need to be sure that you understand the figures – the bank will soon notice if you don’t.

The cash flow forecast will set out the incoming investment from you and any borrowed finance, the set-up costs going out, the money coming in and out through the trading activity and VAT Whilst real life projections can be challenging, the cash flow should allow for contingencies or unexpected fluctuations as bills may not always be paid on time, sales may not hit target and costs may overrun.

The bank will need to see your business plan to help assess any request for finance – to assist your discussions, it is best to share a copy of the business plan with your relationship manager before your meeting

What rate of interest does the bank charge?

The interest rate will depend on the type of loan funding agreed, and in turn this will take into consideration the amount borrowed, the lending term and what security is available

In a rising interest rate environment, it’s important to review the assumptions within your cash flow forecasts regularly, to make sure that they accurately reflect current or projected interest rates The bank’s franchise team or relationship manager will be able to provide guidance.

Do I need security? What security will the bank require?

This will depend on our evaluation of your business as a whole – the prime source of repayment will be cash generated by your business and no amount of security will ever be acceptable if we feel that your business is not viable The last thing we want to do is realise any security – we would much rather see a successful business continuing to trade

We must assess the risk of lending to you and decide whether security is required Security depends on the amount borrowed and how much stake is available, but as a rule, a personal guarantee will be required along with a charge over appropriate personal or business assets

However, if you do not have sufficient security available, we may be able to use the Recovery Loan Scheme This is a government-backed scheme to guarantee borrowing where security is not available and where that lack of security is the only bar to a bank lending the money.

What else does the bank look for when assessing the lending proposal?

As part of our assessment, we will explore your background and experience including any previous or current businesses’, qualifications, track record and financial resources.

A franchisor will also look at this to ensure that you are a suitable franchisee

An important part of the assessment will be the affordability of the funding requested; a typical loan repayment term is five years – is the loan affordable over that period?

This is a critical component of the assessment, as a reputable lender will not lend you money unless we think that you can repay it The actual provision of finance can be in several different forms and usually you can agree a package to suit your needs

Whilst this may appear complex, don’t be unnerved Your franchisor will have established relationships with lenders that are familiar with your chosen franchise system, and will be keen to guide you through the process

Lenders are keen to lend to franchise businesses in general because it is a tried and tested business model – and will particularly welcome applicants with strong business plans and a wellpresented application.

For further information, call and see us on the HSBC stand, at the National Franchise Exhibition, NEC, Birmingham on the 6th and 7th October Or you can find more information at https://www business hsbc uk/engb/campaigns/hsbc-franchising n