Rob Orme, marketing manager at Franchise Finance, looks at some of the reasons why a lender might turn you down
Having worked with thousands of franchisees and raised many millions of pounds, we at Franchise Finance are perfectly positioned to highlight some big no-nos when it comes to raising start-up funds for your franchise:
Holding back vital information
Lenders work within strict criteria. Some applicants think that by hiding certain things or holding information back, they’re enhancing the likelihood of a successful application for finance. This is not the case.
As a prospective franchisee, you will carry out a great deal of due diligence while selecting the right franchise to invest in. Similarly, lenders carry out a great deal of research into you and your business proposition before sanctioning any funds.
It might be an obvious one, but it’s certainly a point worth labouring: your credit history is absolutely vital to a finance application.
Having a minor adverse credit history is not necessarily a deal breaker. However, unless there is a reasonable ‘story’ behind the adverse history, raising finance can prove challenging.
Always be wary of approaching lenders if you have a poor credit record. Finally, take care when searching your credit record, as different types of search (soft/hard) can have an impact on the lending decision.
Not being able to demonstrate debt serviceability
If you can’t demonstrate debt serviceability, you face a real deal killer. A lender needs to be confident that any funds it sanctions will be repaid at the agreed rate and within the agreed period.
How does an applicant give a lender this confidence? The key is a business plan with comprehensive financial projections, including a projected profit and loss, cash flow forecast and projected end of year balance sheets.
The projections need to cover at least a period of three years. Providing these figures are evidence-based and not just ‘finger in the air’ predictions, a lender will be more likely to sanction the application.
While this is far from a comprehensive list, it should provide some food for thought as you embark upon your franchising journey.
Research and planning is so important that it cannot be stressed enough. A good plan based on solid research will stand you in good stead when taking your first steps.