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Debt financing in franchising: banks and franchisees in the investment dialogue

Establishing a franchise requires, in addition to the franchisee's technical and personal aptitude, a financial basis that allows for the necessary investment in self-employment. In addition to rental costs for the property, inter alia expenses for interior, personnel, marketing and franchising license must be taken into account. For many franchisees, equity financing alone is not possible, making bank credit negotiations necessary. In the following article your real estate broker Engel & Völkers you will learn how to obtain the necessary investment sum despite the currently restrictive loan policy and what you should look out for in your discussion with your bank.

The starting situation for franchisees: elementary preparation

Since 2013, the rules of the Basel Committee of the Bank for International Settlements (BIS) on the regulation of banks have prompted credit institutions in Germany to be more cautious in allocating loan amounts. Banks are now increasingly focusing on estimated factors such as credit and market risk, so that the barriers to granting a creditline for investment have tended to increase. In order to receive the necessary funds for your franchising project, the extensive planning of the credit transaction is essential for you as a future franchisee.

As a basis for your argument with the financial institutions, a number of documents that you should prepare or request before the first appointment are used:

The business plan is central information about the idea, the planned development and the economic potential of your investment. Based on this guide, the bank can convince itself of your ambitions as a franchisee even before it is founded - the more detailed the business plan presents future scenarios and conclusive solutions, the more confidence will be evident towards you by the lender. Other documents that contribute to the conviction of the bank, unless you include additional risk factors such as past bankruptcy or legal charges, are your CV, disclosure of your financial status in the form of self-disclosure, or your references, such as training records, university certificates and similar documents. Often a report on your Schufa registration is required.

Your expertise as a franchisee is in demand

However, credit negotiations are far from being paper-based: since you are usually personally invited to the date of the hearing, the individual impression you leave with the bank representative also determines the prospects of success of your request. A serious demeanor, rhetorical sensitivity and a solid base of information on the industry within in your investment shows the negotiating partner that you are fulfilling your future role as an independent franchisee. Also, the courage to engage in active negotiation can pay off, on the one hand, through improved loan terms, and on the other hand, you show the lender your negotiating and economic reasoning abilities - rewarding features for the bank, as your business success minimizes credit risk.

Benefit for franchisees: support of the franchisor in credit negotiations

Compared to classic self-employment, franchising offers the advantage of being able to rely on the franchisor's help with external financing. This provides you with further convincing input for your credit transaction, for example with comparison data from an existing successful operation from the respective franchise system. This way, the lender gains additional confidence in the franchise concept, which increases your chances of getting a loan approval. In addition, the credibility of forecasts of your business plan can be tracked that way.

Franchising loan: Possible even without collateral?

In fact, franchisee investments have shown some opportunities that will allow them to borrow without greater security, even though they are usually still required. For example, to avoid them, you can hire a guarantee bank to vouch against an interest charge on your loan. You can do the same, against additional costs, through a liability exemption or a deficiency guarantee by other third parties. You can also take advantage of selected social support programs for founders, some of which do not require collateral.

Should a collateral security be unavoidable, banks are most likely to be persuaded by account balances, home savings contracts or insurance policies with a repurchase option - ie collateral that can be implemented quickly for the bank. Real estate, vehicles, goods or similar items must first be sold and are usually less suitable for the banks due to the resulting transaction costs, so their full market value is not counted.

Are you interested in self-employment in the context of real estate franchising and want a franchisor that combines first-class services, an international prestige and excellent franchisee support? With Engel & Völkers you have found your partner for the ambitious franchise partnership. For inquiries and further information we are at your disposal!

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