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How much will a bank typically lend someone wanting to invest in an established franchise?
There isn’t a typical formula because each franchisor and franchisee are different. Further, the answer given to the question now would be different to the answer given before the credit crisis.All of the clearing banks, other than Barclays, have a specialist franchise unit. For those franchisors that have made use of recognised advisers, are registered with the British Franchise Association and have a good track record of successful franchisees, funds will be available. For those who haven’t, the banks may be unlikely to make loans available. Further, banks like to see that borrowers have security for the amount of any loan.It is therefore wrong to say that there is a standard package, but where banks are prepared to make funds available to franchisees the general rule of thumb is that they will match pound for pound every pound provided by a franchisee. For highly rated and successful franchises, banks may be prepared to lend on a ratio of 1:2. Historically, these ratios have, for particularly successful franchisors, been 1:3, but these days are sadly gone.Clearly, if the banks are prepared to lend 70 per cent of the initial financial requirements for a prospective franchisee of franchisor A, but only 50 per cent for franchisor B, this is a clear indication of the bank’s views on the likely success of franchisees of both these franchisors, so it is worth checking with your bank whether franchisees of other franchisors are offered more attractive terms.
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