Quick
Criteria Guide
In the assessment of business financial
applications, any financial institution would apply
three fundamental principles in the order below:
1. Is the franchisee’s
own cash contribution sufficient?
The various financial institutions
differ in their requirements on various types of loans
but the minimum amount would generally be 20% on purchase
price of established businesses and 30% on setup costs
of new businesses.
2. Will the business be able
to repay its loan from future profits?
The general rule is that the net profit
of the business before income tax, depreciation and
interest on loans must cover the loan repayment twice.
The banks typically refer to a required debt service
cover ratio of 2.
The loan repayment is dependant on
the loan amount, loan term and interest rate. The loan
amount is the setup cost or purchase price of the business
minus the franchisee’s own cash contribution.
Calculate the loan amount below.
3. In case the business fails,
how is the outstanding loan amount going to be recovered?
What security does the franchisee have
to offer other than the assets of the business? The
required level of security is influenced by many factors
and each financial institution has its own policy in
view of their assessment of the franchise brand, profile
of the applicant, nature of the business etc.
Due to the varied requirement from
all the commercial and non-commercial franchise funders,
Franchise Finance has its task to match the individual
circumstance of the franchisee and the nature of the
transaction with a suitable lender.
We cannot change the lending criteria
of the banks but we know what their criteria are and
have knowledge on their appetite for the different franchised
brands – impacting on the conditions they are
prepared to offer.
We match the applicant to the correct
funder and after the deal is done we make sure the funds
are released as soon as possible through actively driving
the process through the correct channels in the banks. |
