Tips to Secure Bank Franchise Finance

By Darryn McAuliffe, National Manager, NAB Franchise Banking

This article appeared in Issue 4.1 (November/December 09) edition of Business Franchise Australia and New Zealand.

Darryn McAuliffe is National Manager, NAB Franchise Banking. He is responsible for the NAB’s team of accredited franchise bankers and for the ongoing accreditation of franchise systems across Australia, managing key relationships. NAB Franchise Specialist Bankers understand franchising and can offer you a flexible and competitive finance solution to help your business prosper. You can contact Darryn at or 0412 789 027.

Due to the tough economic environment, it has been reported that businesses are having difficulty sourcing finance with lenders winding back their lending settings.

This is certainly not the case from my perspective with NAB. We’re very much “open for business” in the franchise sector, achieving record and increasing lending numbers over recent months and expanding our specialised franchise banking team.

Bank lending guidelines are influenced by many factors. You should expect the bank to have a rigorous credit assessment process in place, not unlike your own assessment process around investing into a franchise system. Lending capacity should primarily be assessed against the underlying risk profile of the business.

Just as business owners are being challenged, so too are banks; but most prudent lenders want to continue to grow their market share by providing credit to existing and new customers.

These lenders will be on the front foot and not looking to pull back in the current environment.  The flow on effect is that good quality, well managed and tightly run businesses should continue to enjoy the support of their financier.

Getting finance for your franchise

To give yourself the best chance to access funding from a financier, ensure requested information is presented in a concise and professional manner – missing details will cause more challenges for you in obtaining what is required.

As always, business fundamentals should continue to drive the appetite of your financier. Well run businesses with a clear strategy and sustainable business model should continue to enjoy financier support. If not, I encourage you to seek out a new financier who is better positioned to help you through this challenging environment.

Just like you and your customers, relationships forged with financiers in the current market have the potential to grow into long and enduring ones which will become key to the long-term success of you and your business.

Do your research – or better yet, get some help!!

Franchising is a big sector which means there are plenty of people like you looking for information.

The Franchise Council of Australia, dedicated legal and accounting practitioners, specialist consultants, trade magazines, expos and government advisory services are all examples of those capable of helping you access the research - work that others have already done.

The majority of the developed franchise systems will also have arrangements with banks that make the basic process of getting finance to buy your business as easy as possible. As well as streamlined lending processes, these arrangements can help the franchisee to repay the money within a reasonable period of time while making a profitable living. 

A good bank with a specialist franchise banking division will only look to create packages for franchise systems that appear to be well developed or established, financially sound, provide people support, training, processes, marketing, operational support and, most importantly, allow franchisees the opportunity to make a reasonable profit from the business.

Choosing the right bank

You should choose a bank that specialises in the franchising sector. You need bankers with franchising knowledge that understand the current climate and dynamics that affect your franchise as well as sector-specific business acumen to make the process smoother.

There could be other start up bonuses for dealing with franchise specialists too. For example, NAB can fund accredited franchise systems for up to 70% of the business purchase cost without franchisees having to necessarily borrow against personal assets (subject to credit approval).

While finance may be an essential ingredient to making your dream come true, ask your banker about other essential business services, such as staff superannuation plans, business insurance and financial planning advice as well.

You want your banker to work closely with you to provide financial, business and personal wealth advice, not just assistance with loans.

It is also important that you choose a bank that can help achieve both your business and personal aspirations and establish an ongoing relationship with that in mind.  Wealth creation should be looked at on a holistic level.

Business and personal financial goals shouldn’t be separated as it’s likely you can make them work for each other. Ideally your franchise business banker will have access to other specialists within the bank and deliver the right advice for you in the areas of wealth management and financial planning.

Be prepared from the start

The majority of businesses will experience seasonal cash flow swings, which business owners need to factor into their budgets and accounting. A good example of this is a franchise business that is heavily reliant on gift or holiday periods such as Christmas or Mother’s Day.

In some businesses, those periods may account for as much as 70% of annual business and profits. If that’s the case for your business, it’s critical that outside these peak periods you budget tightly, control costs and use profits generated during the peak periods to carry the business through.

One thing many franchise businesses don’t consider is that the very growth they seek can have a negative impact on cash flow. Every business owner will seek to increase sales, but the reality is growth that is not managed carefully can also cause businesses to fail. The growth of a business often requires more staff, more stock and more resources to meet the growing sales demand.

If businesses underestimate these demands, they can find themselves in a cash squeeze between having to pay suppliers and wages before receiving payments from their own customers.

There are a range of actions small businesses can take to reduce the impact of cash flow problems. Businesses should be constantly looking at improving ways of collecting revenue.

Tools at your disposal

It is also a good idea to investigate any financial tools and products in the market that are available to help you manage your cash flow.

Whether you interact with customers physically or virtually, there are many solutions from business banking specialists like NAB that could help you to receive payments from a variety of channels – such as ETFPOS, your website or over the phone.

A key tool in obtaining the correct products and support from your bank is the development of your cash flow forecast. This will help you track your finances within the cash cycle - from paying for goods, services and suppliers to collecting revenue from customers.

During the past decade, businesses have enjoyed a strong economy and many have become accustomed to factoring as much as 10% growth year-on-year. But current economic indicators suggest businesses are operating in a more volatile period, so operators need to understand their core customer base and how sales patterns might be affected in a tightening economy.

To help fund any cash flow shortfalls, short term financing options may be available to assist with growth needs as well as those unexpected operating expenses.

Cash flow based finance options, such as invoice-financing, are particularly favourable as they have the ability to grow with the business.  Access to these funds is based on the strength of your business sales, so you are always borrowing within your means.

We’ve seen strong demand for working capital finance from our business customers that are increasingly after smarter funding solutions, which suit their cash and revenue cycles.

The traditional overdraft is also a handy lending product for short term financing, providing a credit limit on top of a deposit account and including features such as the use of variable interest rates, cheque book and electronic access. Of course it is also important to weigh up the associated costs with short term funding for increased benefits, which may also mean increased costs.

Managing outward cash flow

In an environment where you may need to spend money to make money, it has never been more important to know the most cost-effective way to make outgoing payments.

Methods such as direct debit can often be an efficient payment solution for meeting supplier and staff costs.

Make sure that you keep a record of any repayments that your business may have on lending products and the amount owing. But most importantly, remember to always hold and spend your cash wisely. Prioritise and budget your expenses to determine which costs are payable within your means to reduce any unnecessary pressure on your cash flow.

Every business has unique challenges and although it might sound obvious, great business leaders never overlook the basics. Ensuring sufficient cash flow is the cornerstone of every business, large and small.