advice Finance

Stuart Walsh, managing director of Franchise Finance, examines the current state of the market for finance

Read a newspaper today or listen to a news bulletin and you are bombarded with comments about the banks not lending enough to businesses. Is this really the case?

To understand the current position you have to look at life before the credit crunch. The original deregulation of financial markets made banks much more dynamic and as a result, increasingly competitive. They constantly sought to increase their appeal and to seek new ways to win customers.

The changes in technology resulted in them radically changing the way they worked, allowing them to automate and cut costs. Whereas, before you would visit your bank manager in the local branch who would get to know you and be able to make lending decisions, the new model was more remote.

Finance became more of a commodity and consumers could shop around for the best deal. The internet made it easier to compare different banks and to apply "online" without even talking to someone.

When obtaining finance becomes difficult, people need to justify their requirements and to have detailed plans about how they would repay the debt. The ease with which people were able to borrow money had taken away this need for detailed planning and understanding of the risks involved.

People's attitude to borrowing had also changed. The moral obligation to repay a debt appeared to be replaced with an attitude that abdicated responsibility. I even heard of people whose businesses had failed, blaming the banks for lending them the money in the first place.

It is easy to simply blame the banks for not lending but I don't see this as the reality in the middle of a recession. We chastised the banks for their easy lending practices that contributed to the crunch but now that they have returned to stricter, more sensible practices people need to understand the rules of engagement.

We have worked with a number of franchisees who had presented their own business plan to the bank for finance and been turned down. Using our specialist skills we then prepared the plan on behalf of the client, approached the same bank and the finance was approved.

What is very evident to us is that many people prepare a business plan only for the purpose of obtaining finance. As a result, it lacks the necessary content or credibility of a well thought out proposition. The plan needs to be both a route map to a successful business and also a funding proposal. Combining both of these requirements with an understanding of how banks evaluate such proposals yields results.

To date this year, we have achieved a 100 per cent success record of obtaining finance for clients when we have written their business plans for them. In our experience the banks are lending and are open for business; you just have to know how to work with them to provide the information in a format that produces the required result.

The main banks have a thorough understanding of the market with specialist departments dedicated to working with franchises. It is good practice for franchisors to communicate regularly with these teams, keeping them up to date with developments in their franchise. Consequently when they receive a franchisee's proposal for finance, they will have a fuller understanding of the opportunity, which improves the chances of a successful application.

To answer my original question most certainly the banks are lending but to be successful you need to be well prepared with a professionally thought out business plan based on an understanding of the banks requirements.

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