Franchise Financing.

Connie Bruwer from PC Bruwer and Partners give advice on this important topic.

Question:  Financial Institutions know well that the previous paralyzing effect of the economy did not get the franchise sector down.  It is therefore that this sector is in a much stronger position to obtain financing in the current economic environment in comparison with businesses who need to get on track again on their own. Tell us more about this, Connie.

Connie:  According to the Franchise Association of Southern Africa (Fasa), banks and other financiers believe that the franchise industry is one of the sectors that is flexible and innovative enough to withstand economic storms.

In 2002 to 2003, when the economic cycle also reached a turning point, the industry expanded by 17.5%.

South Africa’s leading banking groups, Business Partners and the Industrial Development Corporation (IDC) said they have plans ready that can speed up applications for financing in difficult times.

Me. Trudi van Niekerk, Absa’s franchise head, says Absa has a number of products developed specifically aimed at sub-sectors, such as the fuel industry. The bank is also willing to extend loan tenure to help franchisees through the economic downturn.

Mr. Mark Rose, head of Nedbank’s franchise division, said the bank works with franchise givers to give the best financing structure for franchise holders.

Question:  What does this mean?

Connie:  “This means that there are pre-approved financing guidelines that get uncertainty out of the way.”

One of the first aspects that Standard Bank take into account in difficult times, is what the franchisor is doing to keep his business viable, says Mr Frank Orchard, senior manager of acquisitions and franchise operations.

“With interest rates that have soared, we need to ensure that businesses are not overburdened. We work together with the franchisor and franchisees to find a solution.”

Question:  Any other approaches or opinions?

Connie:  Business Partners’ operating chief, Freddie Bruintjies, says the organization has a flexible approach to the amount of equity that a prospective small businessman can contribute to.

“Our decisions are not dependent on a collateral investment because we focus on the potential cash flow that can be generated to determine the level of debt that a company can afford,” he says.

Me. Christine Schreuder, franchise head of the IDC, said although the organization’s focus remain on the support of emerging entrepreneurs with limited capital that want to become franchisees, they are also looking at financing franchise givers.

“The IDC has a scheme were bulk loans are given to franchise givers, which in turn can pass on the loans to franchisees in the group.

“Direct funding of at least R1 million over a period not exceeding six years, is still available for franchisees in BEE groups.”