You’ve written your business plan and submitted your finance application but it’s been rejected. Novuna Business Finance explores why
It’s unlikely that when you start any business you can achieve it without capital. Perhaps you have some saved, or you’re fortunate enough to receive a loan from friends or family. But these options aren’t always available, so you’re likely going to require a loan from a lender.
You’ve chosen a brand and written your business plan, and you believe you’re ready to submit your finance application to start your franchise business. But have you considered the possibility that your application may be rejected, and why? It happens. It’s invaluable to explore the ‘why’ and determine whether you have some work to do before you approach a lender for finance.
Your personal credit history
Have you had problems repaying loans in the past? Late finance payments? A lender will require confidence that you will be able to manage your finances well and pay them back on time, each month, so having a good credit history is vitally important.
Your business plan
If not structured correctly, your business plan can have many gaps and a lender would want to truly understand how you intend to repay the loan and grow your business. In other cases, your projections could be unrealistic and leave many more questions to be answered. Don’t leave any stones unturned; there are many business planning services in the franchise industry that can help you fill in the gaps and deliver a finance application that lenders can work with.
Your chosen franchise brands viability
Some lenders will consider the length of time a franchise brand has been successful. This is to build confidence that the business model you are replicating will ensure you have long-term success and you can repay your loan in full.
You’re asking for too much money
The amount of finance you’re looking to receive can be the reason why you get rejected. The period of time you may be looking to repay your loan over and the amount of money your business is generating may mean the amounts you’ll be repaying monthly may not be feasible. Your lender would identify this, and they would question whether you could sustain your repayments over the course of your agreements.
You have no collateral against your loan
When you are looking for a large loan, some lenders would need security should your business fail and you’re no longer able to afford repayments. They would require that you put an asset up as collateral so that they can get that money back. So, if you have no high-value assets to put up as security (like your house) they may not consider you eligible for finance with them.
Remember, these requirements vary for each lender. Some may be satisfied with what you provide but don’t settle for the minimum. Be realistic with your goals, work hard at building your credit score and continue to review your business plan where necessary so that others can believe in your vision too.
Novuna Business Finance is an expert in delivering funding solutions to franchisors and franchisees across a range of industries in the franchise sector.