Franchise finance and such

[syntax]

So im looking for a bit of information. I am not looking for advice on whether or not I should do a franchise etc though

I have the franchise opportunity I would like. I need to finance the initial outlay though (i know some franchises want the cash available, but that is not the case here, so i can finance it)
Firstly, what is the best way to do this?

I will be doing it with a partner, is it better to setup a business which then applies for the finance? Who is the best person or best place to speak to about this? Would it also be a financial advisor?

The amount we need to finance is not a helluva lot (around 600k), and we could afford the repayments on the loan without any assistance from the business. Ie we could cover the loan.
Expenses and rent etc should not be enough to cause a serious issue with covering the loan payments.

Thats about it, if anyone can recommend where i start with the finance / business setup part, i would be greatly appreciated

Thanks

 

[Greg C]

So im looking for a bit of information. I am not looking for advice on whether or not I should do a franchise etc though

I have the franchise opportunity I would like. I need to finance the initial outlay though (i know some franchises want the cash available, but that is not the case here, so i can finance it)
Firstly, what is the best way to do this?

I will be doing it with a partner, is it better to setup a business which then applies for the finance? Who is the best person or best place to speak to about this? Would it also be a financial advisor?

The amount we need to finance is not a helluva lot (around 600k), and we could afford the repayments on the loan without any assistance from the business. Ie we could cover the loan.
Expenses and rent etc should not be enough to cause a serious issue with covering the loan payments.

Thats about it, if anyone can recommend where i start with the finance / business setup part, i would be greatly appreciated

Thanks

Unfortunately what you are attempting to do is not possible from the banking instituions I know of

How do I know? I work for Absa and deal with franchises etc
It is required of our clients who are looking for finance for a franchise to have 50-60% unemcumbered cash. Exactly the opposite of what you currently have.
Why do we ask this? Because why should the bank take all the risk for backing you 100% for something and if it flops the idea is what then?
You put down the cash and back yourself and the bank will back you as a partnership in terms of the finance awarded.

If you get finance for 100% in wont be through a Bank that I know of. Possibly through some private investors at higher interest rate venture capitalists.

Good luck though

 

[Mortymoose]

Best to buy the franchise 100%, if you go for the options of only having 50-60% cash, you will find it demoralising after a period to realise that the bank owns your franchise and not you..... in essence, the profit you were meant to be making will be going to the bank, tough sell.....

When I finish up here one day, I will be looking at buying two smaller franchises, but I want them cash and to have at least 6 months working capital.......

Just my 2 cents...

 

[FlatspinZA]

I don't think so. If both partners have the spare cash to cover the instalments without needing a profit from the new venture, and perhaps be able to cover some losses, then why not?

The biggest issue is the losses, if any, because that will break you and any savings you have if you can't find a way to recover, quickly.

You will never just start a business and then get financing, because, as with any natural person, you need to have a credit history.

If you are passionate about your venture, go for it, but don't expect anyone to help you. If, after a couple of years, you need help, then you can approach the banks.

 

[Mortymoose]

spare cash to cover the instalments

without needing a profit from the new venture, .

Ok! Two Points, Spare cash, is the spare cash an endless supply that will always be available to service the loan?

2nd point, What's the point of having the business if you do not want profit?

This being said, I understand to an extent where you are coming from, in our business, just as we are about to make profit, we intentionally spend ourselves into debt by buying more fridges, equipment, Vehicles, generator,a revamp.... anything of asset value... in doing so we have to give the receiver less tax.....

 

[FlatspinZA]

Ok! Two Points, Spare cash, is the spare cash an endless supply that will always be available to service the loan?

2nd point, What's the point of having the business if you do not want profit?

This being said, I understand to an extent where you are coming from, in our business, just as we are about to make profit, we intentionally spend ourselves into debt by buying more fridges, equipment, Vehicles, generator,a revamp.... anything of asset value... in doing so we have to give the receiver less tax.....

Spare cash is never an endless supply, you know that!

 

[Mortymoose]

Spare cash is never an endless supply, you know that!

I think I phrased that wrong, what I meant was if you have spare cash to service your franchise loan, would you always be able to service that loan until it was paid off?

What would happen if you defaulted on your loan repayment for a say a period of three months, would you stand to lose what you have already worked hard to achieve?

 

[Legosa]

In the same boat but going to fund the business with my own money.

When MortyMoose mentioned buying items that I deem capital in nature, "fridges, equipment, Vehicles, generator" alarm bells went off. When can and when can't you deduct these as operational in nature.

Did a google and nothing really comes up, but found this

http://scoa.treasury.gov.za/Documen...g between current and capital expenditure.pdf

and it mentions anything below R5k is deemed operational/current. Anybody that can verify?