Auditel Franchise Funding and Finance Guide
Why Auditel offers a Five or Ten year franchise option
Prior to 2020, Auditel have offered a five-year franchise term, though almost all of Auditel’s franchisees (affiliates) have started their business with a ten+ year plan in mind. After five years, there is no cost to renew, so most affiliates renew on a new five-year term, though we have seen personalised renewal terms agreed of up to fifteen years.
Whilst Auditel’s five-year term remains preferable for many, there is a distinct benefit with a ten-year term when it comes to raising funding, so Auditel have formalised a ten-year franchise term variation to support those who would prefer a ten-year term. The model also includes a provision that provides the option to for a break point at the five-year stage too.
How much money might you need to borrow?
When people join Auditel, their financial circumstances are of course unique. Some people may self-fund if they can, though many still choose to borrow to support the business in any case.
Most will require funding of some degree, and it’s common in franchising to hear that a bank will support up to 70% of the funding requirement that somebody may have for their business to cover the total start-up cost and working capital requirement. For Auditel, with our highly proven business system, we are pleased to advise that key franchising banks will provide the full 70% and, on occasion, slightly more.
Firstly, the initial investment itself is £39,950+VAT (Or £19,950+VAT for the Associate model). Your Auditel business would be VAT registered from the outset (as part of the business set-up process) and so the VAT element would come back to you, usually following the end of your first VAT quarterly return.
Then comes the more variable aspect of ‘year one’ financial support. This will take into account your personal circumstances in covering ‘living costs’ as well as some business monthly costs that, to begin with, won’t be covered by business income. Auditel have a business financial planning spreadsheet and business plan template that we work on with you during the research process, as part of the initial meeting we have with you.
Once we have explored with you about determining what level of finance you may require we can connect you with suitable financiers such as HSBC or NatWest who can support your financial application.
10 year Agreement – Funding Benefits
Funding can only be secured against the term of the franchise, so with a five-year term this means that the loan can only be spread against a maximum of 60 months. A Capital Repayment Holiday (CPH) may still be available for 6 months. (CPH explained later in article)
However, if a ten-year franchise term is taken then borrowing may be for up to seven years on an Unsecured Loan, plus the extra advantage of a Capital Repayment Holiday of 12-18 months depending on the lender to reduce repayment value in the early stages when funding will be most required.
Utilising the Enterprise Finance Guarantee scheme, the loan can be spread over up to 10 years.
‘Enterprise Finance Guarantee’ scheme
The ‘Enterprise Finance Guarantee’ scheme is a government initiative to support business start-ups or expansions through providing a bank or lender with security worth 75% of the loan value. This is helpful for people who do not have assets to secure against and who require funding beyond levels of unsecured borrowing. This is also relevant for those where an asset sharing partner does not wish for the aset to be used as security.
Funding can also be spread over up to ten years, helping reduce monthly payments in the early stages where cash-flow may be limited. There is however a 2% cost for this finance security, invoiced quarterly and separate to the bank’s own funding arrangements.
The ‘most popular’ route for funding is through unsecured borrowing. This is preferential for two reasons. Firstly, the loan is not secured against assets such as your property. Secondly, there are less initial fees compared to borrowing with security too. You will be required to provide a personal guarantee of repaying the finance however.
The key with unsecured loans is how much a bank will offer. HSBC for example, will offer up to £30,000 in borrowing for an unsecured loan. NatWest on the other hand, publicly will offer up to £50,000 however for Auditel we have seen this level increased subject to individual circumstances.
In conjunction with a Capital Repayment Holiday, this is often the preferred method of funding for many if circumstances suit.
A key factor of lending also but something that should be checked with each lender individually, is that you may be able to pay off greater amounts than the fixed monthly repayments without penalty, or that the entire loan may be repaid also without charge or penalty.
The ‘traditional’ loan method, involved a borrowing amount being secured against assets, usually property. Fortunately, for most, the level of funding required for an Auditel franchise may fall within the levels offered by lenders on an unsecured basis, but otherwise secured funding would be required.
The ‘annual percentage rate’ (APR) of interest for the loan will often be lower than for an unsecured loan, since the risk is being secured against your assets, however there will also be additional fees from the lender such as admin fees or valuation fees, that could balance out any benefit of a lower APR. The timescales of raising finance in this way are also much longer – perhaps 8-10 weeks from the start of the process to until the funds are released.
Capital Repayment Holiday
With any business, it takes time to turn a profit. Franchises are no different, and this includes Auditel. Our franchisee affiliates are trained and supported in developing their client base and undertaking projects, but this will mean that cash-flow develops over time. The beauty of the model is that with several years of contracted income ahead, every new project undertaken is another income stream that stacks on top, so as your business develops so your income continues to build too.
Often, people may seek financial support to cover their living costs also whilst their Auditel business grows. The Capital Repayment Holiday period means that for a period of time, you only pay back loan interest, rather than interest plus loan repayment. The effect of this on an Auditel business plan is that by repaying less in the opening period of your business, in turn, your borrowing requirement can reduce accordingly. HSBC advise they can offer up to 18 months CPH, whereas NatWest will offer 12 months.