Franchise Finance

Which bank?

It’s not so much a question of which bank, but which bank actually wants your business. The fact is, there are few lenders that will fund franchise businesses and it’s important to know which ones are receptive to your particular franchise.

There can also be big differences in loan flexibility and costs. So how exactly can one bank or lender differ from the other?

1. Loan to Value Ratios (LVRs) Some lenders will lend more than others. While some will lend up to 70% against the market value of an existing business and up to 60% against total setup costs (ex GST) for a greenfield site, others may only lend up to 60% for existing businesses and 50% for new businesses.Some lenders may not be prepared to lend against your franchise business at all.
2. Interest Rates and Fees Interest rates and fees for business loans can vary greatly, anywhere up to 3% p.a. difference is common. While application fees can vary from $0 to 2.5% of the loan amount. Monthly fees can vary from $0 to $100+. This can equate to thousands of dollars over the life of a loan.
3. Approval Conditions These can vary significantly and may include maximum loan terms in line with lease duration (even if loan is secured by residential property). Some lenders will require a business valuation (at your cost) while others will assess the value of your business as a multiple of Net Profit (EBITDA). Your Green Team finance broker will assist you to avoid valuation costs if possible.
4. Repayment Structure Most lenders will insist on Principal and Interest (PI) repayments for business loans secured by a franchise business. However, Interest Only (IO) repayments may be possible for business loans secured by residential property. An overall loan term of up to 25 – 30 years may also be possible with residential property security.