Franchise GrowthWorthy franchise operators are relegated to the sidelines, not because they don’t have the skill, but because they lack access to sufficient cash and collateral to qualify for commercial funding.
By Kobus Oosthuizen
Commercial banks typically insist on an owner’s cash contribution of at least 50 percent of the set-up cost, as well as additional security in the form of unencumbered fixed assets, before a loan for the establishment or acquisition of a franchised business will be considered. These stringent funding requirements disqualify many a potential operator from owning a franchise, regardless of his or her ability to successfully manage such a business.
How then would a young entrepreneur, who has not yet had the opportunity to accumulate cash or assets, get into business? We hear daily how the country needs its young entrepreneurs to set-up their own small businesses, but without cash to meet commercial bank requirements, they have no means of securing the necessary funding. This phenomenon deprived South Africa from the opportunity to establish many more small businesses and a solution is dearly needed.
SA Franchise Warehouse, together with five development funding partners, has developed a funding solution aimed at entrepreneurs with access to limited cash. For obvious reasons, actual own cash contribution still remains a key requirement, but instead of a 50 percent, a mere 25 percent cash contribution is now required to qualify for funding in terms of this programme. Security is optional and if a candidate has no security to offer, the transaction would not be compromised, provided that the candidate meets all the other requirements.
The Pre-approval Funding programme
The programme commences with a 3-day workshop designed to introduce the would-be franchisees to the principles of owning and managing a franchised business. It is necessary for aspiring entrepreneurs to be fully aware of the intellectual and physical demands as well as statutory and legal obligations business ownership will place on them before the process of finding and funding a business can begin in earnest.
Following the workshop, and provided the entrepreneur is ready to proceed, a Business Skills Assessment is conducted. The assessment aims to analyse the candidate’s profile and evaluates the various personal attributes required to manage a business.
SA Franchise Warehouse and our funding partners have an obligation to ourselves, the candidate franchisee and any other party that may, at some future date, become commercially involved with the franchisee, to be diligent in the evaluation of our candidates.
The higher gearing and ‘security optional’ policy of our development funding partners, means that the lending risk assumed by the funder is significantly higher than with commercial banks. This approach requires additional measures to reduce and manage risk and forms part of SA Franchise Warehouse’s primary obligation towards its funding partners.
Introduction to franchise systems
Upon successful completion of the Business Skills Assessment, applicants are introduced to various potentially suitable franchise systems based on the candidate’s preferences, experience and the actual value of their available own contribution.
Candidates are introduced to franchisors with the understanding that the candidate would qualify for funding subject to the franchisor’s approval of the applicant as a future franchisee and confirmation that suitable premises have been identified.
The Funding Process
Once the franchisee has been approved by the franchisor, he/she will attend a 5-day business management course, the successful completion of which is a condition to completing the funding transaction. The business management course focuses on accounting and HR administration and provides guidance on the compilation of a business plan. SA Franchise Warehouse also facilitates the process of submission, approval and implementation of the candidate’s funding application.
This programme is designed for both start-up businesses as well as the acquisition of existing businesses.
Once a franchisee’s business is up and running, SA Franchise Warehouse is contracted to perform an administrative mentoring role in order to ensure that the franchisee remains compliant in terms of their accounting and statutory obligations.
SA Franchise Warehouse has an obligation to report to the respective funder, on a monthly basis, on the performance of the business and to engage the franchisor if necessary.
The cost of the program is R3,420 (incl VAT). For workshop dates and further information contact Debbie Le Roux on 012 460 2345 or send an e-mail to firstname.lastname@example.org.