f r a n c h i s e f i n a n c e
Increase your
A leasing option would provide a fixed
monthly payment for the franchisee to
cover their equipment requirements,
financial security
spreading the cost over the useful life of
the equipment. The fixed nature of the
through leasing
payments takes away the uncertainty
of changing interest rates. Some of the
franchisors we work with use leasing to
provide a replacement or refresh cycle
As the Bank of England warns that
that ensures the franchisee updates
the global credit crunch will
his equipment or refreshes a shop
environment on a planned basis. As a
worsen in 2008, Stuart Walsh,
result, this maintains the quality of the
Managing
franchise brand.
Director of
Practical steps
Franchise
Establishing a leasing scheme is quite
Finance, looks at
straight forward. The franchisor will
the benefits of leasing
need to be able to demonstrate a sound
as an additional source of
concept and ethical practice. This is also
a way of providing added value to your
funding for a franchise new and existing franchisees. It would
reduce the amount of capital required by
The Bank of England’s recently moved to maintain their own liquidity
the franchisee and could open up your
published credit conditions survey they stopped lending to each other;
franchise to a wider pool of potential
showed that lenders had embarked on companies that depended on this
new recruits.
a dramatic clampdown on borrowers interbank market suffered, with some
in both the household and corporate headline failures such as Northern Rock.
Leasing can be used to finance the
sectors after turmoil in money markets
tangible items in the franchise such
across the world. This will make it In the wake of all this turmoil, with the
as capital equipment, vehicles, IT and
increasingly difficult to secure debt over banks seeking to minimise their risks and
telecoms, however it can also be applied
the coming year, causing a rise in both maximise their liquidity, it could get a lot
to items such as shop fittings and
personal and corporate insolvencies, the harder to raise financing. The Bank of
computer software.
Bank said. England, commenting in January, gave
a gloomy assessment and said that firms
Once a scheme is set up a new
In such uncertain times franchisors had found it harder to borrow funds
franchisee will need to be approved
therefore need to be aware of all the towards the end of 2007. The cost of
for financing. The information required
options open to their franchisees when financing could also get more expensive
is typically a copy of the franchisee’s
it comes to financing. as financial institutions look to increase
application form and business plan.
their margins to cover losses; therefore,
A credit search will be performed; it
Crunch time franchisors may well have to review their
is a good idea to ask your franchisees
In 2007, US banks provided mortgages franchise business plans to update them.
about their credit history early in your
to people with poor credit histories or
application process. Modern day credit
low incomes, known as the sub-prime Lend a hand
checking is very thorough and any
market. It collapsed last year as many For franchises that have an equipment
previous problems will always show
of the loans defaulted and started what requirement, a leasing scheme could
up. It can save you a lot of wasted
we now know as the credit crunch. prove an invaluable addition in 2008.
time if these issues are uncovered early
We have been advising franchisors for
in the process.
These sub-prime loans had been sold nearly thirty years that their franchisees

on several times to banks around should have a balanced approach to
With the outlook for the economy looking
the world and the collapse caused financing and not put all their eggs in
uncertain, putting a leasing scheme in
billions of dollars of losses for many one basket. A mix of cash, bank loan
place for your franchisees could prove to
financial institutions. As the banks and leasing would deliver this.
be a sound move in 2008.
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