South Africa's economy is under significant pressure and, for a number of reasons, there is little promise that this will change in the near future. In May last year, the International Monetary Fund (IMF) predicted only 1% growth in 2017, up 0.2% from their previous prediction of 0.8%. While it may be moving in the right direction, it falls short of being impressive by anyone's standard.
Despite the economic challenges that businesses face, franchising is one sector that has consistently shown its resilience by performing well.
We spoke to Dumisani Bengu, head of Franchising at Absa, about the advantages of franchising and the financial options available to potential franchisees.
And so, it seems, do banking institutions. But it isn't the only factor considered when granting a loan.
Because of the resilience of established franchises, banks and financial institutions take a positive view of such companies. Existing relationships with certain franchises affords applicants preferential status when applying for finance.
What factors do banks look for when deciding to approve a loan?
Do you present a creditable prospect to the bank?
What are your ethical standards in terms of honouring your obligations?
What kind of credit record do you have?
If you are unwilling or unable to honour your obligations, what collateral do you have to secure the loan?
Your worthiness as an applicant, however, isn't just about your credit rating or balance sheet. Personality is key to the success or failure of any business and, therefore, key to ascertaining whether you will receive your loan. Experience in business or as an entrepreneur helps, Bengu points out, but there are always individuals who show the signs that they have the right personality. Bengu encourages people to take a long, hard look at themselves to ascertain if they meet the criteria.
Family support is also essential. Potential franchisees need to understand the pressures of the business weighed up against the family demands.
Basically, you need to know yourself inside and out, says Bengu, but also know the franchise. What is its track record? Are its ethics aligned with yours? What kind of training and support does it offer? Do your research, speak to people who have been there to get first-hand experience. One of the biggest mistakes someone can make is not fully investigating the business or themselves.
Once the bank has ascertained that you are a good risk, then there are many different finance options, depending on your particular circumstances and needs.
For buying the business, for example, they could organise a term loan, whereas the required working capital could be structured into a long-term loan or short-term instrument such as a credit card. If you are running your business from property that you own, a mortgage-based loan could be arranged. Other options, should you qualify, include enterprise development funding – where there is a reduced requirement in terms of your own contributions (as low as 20%) – or BEE funding. Each loan, as well as the interest rates, will be weighed up against your needs and capacity to pay it back.