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  • #983858
    poseidon
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    Hi, I am looking at a new franchise opportunity with start up cost of around 300k. Issue is I have bugger all capital and no significant assets. How can I go about getting a business loan for this (the franchise is reasonably established and well known)

    At best I could probably provide 40k of my own cash to get started but would need to finance the rest.

    #1144649
    Anonymous
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    Hi poseidon,

    Sorry – I’m not the right person to answer your questions, but I did just want to apologise that your post got held up in our moderation queue for a while there.

    I hope you receive some helpful advice soon.

    Good luck,
    Jayne

    #1144650
    LucasArthur
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    Hi poseidon,

    Although i am no guru, i find your initial query quite interesting, only saying this as you already appear to have identified the flaws in what you are potentially seeking..

    Applying for credit for a franchise can be difficult, as for any business.. Although banks do appreciate the sound back end and front end support (of some franchises) they still ‘interview’ the applicant to ensure they have the capital, the understanding and the HURT MONEY to contribute..

    Some banks do offer a special acknowledgement for some franchises meaning they offer a higher percentage in lending, although if your franchise is $300k it is highly unlikely that they will offer you 100% funding based on your $40k vehicle. Not meaning to be harsh, although they are some hurdles that may prove quite difficult to overcome..

    My suggestion would be to speak to the franchise operator and see if they have a ‘preferred’ bank that may already have an intimate knowledge of their operations and this will provide you someone to talk too.. asking things such as:
    1. what sort of LVR (lending to value ratio) do you offer against this franchise
    2. what experience is required
    3. what security – can you take it directly against the franchise as the asset

    Another thing you may wish to consider as well is, especially if have no security or savings, is how will you fund the initial operating period without any cash? do you anticipate the bank will lend this as well? if so this may push you over the 100% lend against value of franchise that is most certainly not a favourable position for the bank..

    Side note: if you didnt already know: banks only lend on things that are a ‘good’ risk.. especially in todays economic climate. This is why they want you to be contributing to the purchase (hurt money if something goes wrong) + have experience in the business you are entering (or similar), have an asset base and proved your worth prior to your foray into the business world… and so forth..

    Please do not take anything as negative, just BIG obstacles that you will need to quickly decide if a bank is even willing to overlook before you invest too much time or effort into the process and build your hopes up… Or, will set you on a path to correct all the things the banks do not want to see in order to get across the line and fulfill the application positively..

    Love to hear more and how you go… speak with the franchise operator first…

    Good luck
    Jason ;)

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
    #1144651
    poseidon
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    Hi Thanks for that, lack of start up capital is a major hurdle for me (as I’m sure many others) and my main goal at the moment is to determine what banks will accept before they consider a loan and work towards that.

    Cheers

    #1144652
    SandraMac
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    Hi Poseidon,

    I’m definately not an expert in this field but I did learn one thing from working in banking a few years ago.

    Find a finance broker. You will get a better deal and they should be able to give you an idea whether you may be accepted for a loan before processing it.

    The other reason why it is good to get a broker is that it will be only one application rather than a few if you choose to shop around the banks. It is never a good idea to make too many credit applications at once as it reacts negatively towards your credit rating.

    The negative in regards to going through a broker is that usually customer service is not as quick for brokered loans. That is my experience in regards to one of the big 4 banks.

    Best of luck.

    Sandy.

    #1144653
    LucasArthur
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    SandraMac, post: 165741 wrote:
    The other reason why it is good to get a broker is that it will be only one application rather than a few if you choose to shop around the banks. It is never a good idea to make too many credit applications at once as it reacts negatively towards your credit rating.

    Have to say that brokers can be great… although with franchise groups, you tend to find if they have a preferred affiliation with a BIG 4 you are much better off speaking to that business.. reason is that they are granted all access to financials enabling them to make a ‘better’ decision if they like the franchise group..

    Also, the apps tend to be handled by a Regional Manager or Business Banking Manager that actually has a level of discretion to facilitate some loans…

    As opposed to:::

    Brokers who may not have said access and are working for the introductory/trailing commission that is on offer.. not saying anything negative, just different motivation levels that can ‘skew’ the application itself and the way it is presented…

    Although:::

    Before you even contemplate an application, you need to evaluate if the proposition is even viable and if a BIG FOUR bank isnt willing to touch the application you may need to sit back and ask yourself why would a broker consider it with your criteria if a BIG 4 didnt? just playing devils advocate here…

    Again, i am no expert at all… although when it comes to finances, lending and the likes always treat cautiously when buying yourself a business because the more you borrow the more you are merely buying yourself a job in some situations..

    Another great question to ask is: “if my friend was to approach me for a $300k loan with NO SECURITY or capital, would i lend it to them after assessing the request without emotion?”

    Cheers
    Jason ;)

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
    #1144655
    Peter Jonsson
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    Hi Poseidon,

    Purchasing some franchises has its benefits when trying to obtain finance from a bank. Reasons being is that most good franchisors are accredited with the big 4 banks (NAB, CBA, ANZ and Westpac). What this means is that you can obtain a percentage of funding against the purchase price of the business (usually confirmed by a valuation either completed by the bank internally or through an external valuer depending on the franchise). Some franchises can get up to 60% / 70% lent against the value of the business however more commonly you will see 50% against good accredited franchises. Every bank has a different appetite for each franchise as they will all have different lending exposures and limits internally as to how much they want to lend to a particular franchise. So speaking with a finance broker who is experienced in obtaining funding for franchisees is a great first step as they should know each banks appetite.

    For your personal situation it sounds like you will have difficulty obtaining finance due to your limited capital or security. If this franchise is accredited with one of the banks you will more than likely need a minimum of 50% security as well as start up working capital (initial cash flow).

    Regards,

    Peter Jonsson
    Business & Banking Consultant

    http://peterjonsson.com.au

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