Franchising lending bucks the trend

Another day, another portent of impending financial crisis. If the last six months had been an episode of Dad’s Army, this would be the point at which Private Frazer cried “We’re all doooomed Cap’n Mainwaring!”. After years of what some would call generous and others would call reckless mortgage lending, the banks and building societies are finally reigning in their largesse. The sky is black with chickens coming home to roost.

Of course, if you don’t want, or need, to remortgage or buy a new house, the fact that mortgages are harder to come by isn’t necessarily a problem for you. Once house-prices start to back-slide, however, it’s another story. Negative equity may not yet be as wide-spread as during crash of the early ‘90s but its spectre no doubt stalks dinner-party conversation across the land. And that, of course, is the real issue: financial crises are often feared well before they are actually experienced. Our confidence plummets and we brace ourselves for the worst. Conventional wisdom, therefore, would say now is not a good time to start a new business.

Ironically, however, the banks don’t seem to agree. They might be nervous of new mortgages, but they are still keen to support new businesses, especially franchises. If your business model and business plan are sound, there’s no reason why you shouldn’t weather financial storms, which is presumably why all the franchise departments of the major retail banks were busy networking at the recent Olympia franchise show. For a start, franchises have a much better success rate than other new businesses with over 90% reporting profitability after five years of operation compared to only 20% of stand-alones. Just as importantly, good franchises already have a proven track-record meaning the banks can more easily assess whether your business proposition is viable. For this reason, they are usually prepared to lend a higher proportion of start-up costs (up to 70%) if you are investing in a well-established franchise such as Auditel but nearer 30% if you are investing in a new franchise.

Of course, none of the banks would, or should, recommend one franchise over another, but they are a good source of general franchising information so even if you don’t need finance for your new venture, they are well-worth contacting. HSBC, NatWest, Lloyds TSB, Bank of Scotland and The Royal Bank of Scotland all have dedicated franchise teams and are affiliated to the British Franchise Association.