In the current market environment, a profitable business built on a proven business model would be less risky to both the business owner and its lender, compared to highly speculative property investment or any small, unsupported business.
Many people have achieved their dream of a good quality self-employment by becoming franchisees.
Buying a franchise involves two types of costs: (1) Initial Franchise Licensing fee, which includes franchise brand name and an established business system, and the on-going franchise fees (2) Working capital for overheads such as rent, staff wages, stock, electricity, water and equipment.
Banks generally look more favourably on franchise businesses than non-franchise ones due to set franchise management system, availability of franchisor’s support and comparatively better chances of success and growth.
You can pay your part in cash or can borrow against your property. Banks also lend for this purpose against a third person’s (your friend or relative) collateral.
An experienced professional mortgage broker will be able to offer sound advice and sort out issues to your benefit and satisfaction.
Most banks, depending on their lending criteria, may be prepared to loan up to 80% of the value of your home and 65% of commercial property value, as franchise businesses tend to have high success rates.
They attract more favourable loan rates.
Important factors
While a range of lending criteria applies, some of the factors used by lenders like ANZ and Westpac banks in assessing franchise systems are as follows:
The number of franchisees: A larger number of franchisees in a system would indicate that this business could be started successfully. Franchisees should use their own judgement and take advice of professional advisors, including the banker to decide on a particular franchise system.
The length of time the franchise has been operating: Speedy growth is confirmation that a franchise system is successful. But there are many that have opened strongly and then failed because there was no strong market for the product or service. Therefore, product strength is important.
Are the majority of franchisees making an acceptable Return on Investment (ROI)?
Lenders tend to examine how franchisees are operating, rather than concentrate on the franchisor’s profit and loss.
ROI is a key indicator of the level of profit achieved by a franchisee as a percentage of investment; a typical benchmark is between 20 and 30%.
We can arrange a loan for a franchise at best possible terms and conditions as we know which lender is most suited for a particular franchise.
Documents and information needed are similar to a standard business loan.
Talk to a professional if you need more details or have any query.
A nicely prepared application, providing all necessary information and addressing all concerns of banks has a better chance of being approved.
Suresh Sharma is Director of Cherry Mortgage Solutions based in Auckland. His personal disclosure statement is available on request. Phone: 021-827575. Email: cherrymortgage@xtra.co.nz;
Website: www.cherrymortgage.co.nz
Disclaimer: The above article should be taken only as a guideline and not as personal advice. Mr Sharma and the management and staff of Indian Newslink absolve themselves of all responsibilities or liabilities in this connection.
Editor’s Note: The above article appeared in our August 15, 2010 issue. Since then, the NZ Government has enforced the Financial Advisers Act, which obliges financial advisers to be either Authorised or Registered. Readers should obtain appropriate information before seeking advice.
