Setting up as a franchise involves raising funds to finance essential investments: entry fee due to the franchisor, layout of the premises respecting the instructions of the brand, possible constitution of a stock… Here is how to proceed.
Personal contribution
It is made up of the savings of the franchisee and any associates. Representing 25% to 45% of the total investment, depending on the area of activity, it must generally be supplemented by a bank loan. In the service or consulting sector, because physical assets are less important, banks often require a higher capital ratio. Be aware, however, that several regions grant aid for setting up or taking over companies/goodwill (find out more from Bpifrance-Création or the CCI network). And that unemployed business creators can, under certain conditions, collect their accumulated rights, which will strengthen their starting capital (Arce system).
honor loan
To supplement your own funds, it may be wise to request an “honorary loan” from platforms such as Initiative France or Réseau Entreprendre, present in all regions. Obtaining it is subject to the agreement of an approval committee made up of business leaders and experts. The advantage of this loan without interest and without taking security? The banks equate it with the equity of the entrepreneur, which increases the borrowing capacity of the franchisee. This approach also allows you to better structure your project.
Bank credit
Negotiate with banks – consider asking several! – requires rigor and professionalism, especially in the current situation. You must therefore present a realistic business plan. The franchise model is perceived favorably by the banks, especially if the chosen brand has been referenced by the establishment’s specialized services and has transmitted economic and financial indicators facilitating the processing of the loan file. As part of this process, being accompanied by a financing broker can help improve credit conditions and reduce processing times. “We generally obtain an interest rate lower than those prevailing on the market, attests Stéphane Kirsch, partner of the firm CréditRelax. We also manage to reduce account maintenance fees, commissions on payment terminals and other components of banking offer. In any case, it is rare that the bank does not require guarantees. In addition to pledging the goodwill, the banking institution often requires the borrower’s personal guarantee, including in addition to the guarantees provided by Bpifrance or mutual guarantee companies such as Siagi or Socama.
Open your capital, but to whom?
Several options exist when seeking to strengthen equity and increase borrowing capacity. You can appeal to natural persons (friends, relations) or to professional investors. Whatever your choice, it is better to sign a shareholders’ agreement, to anticipate any possible dispute.
The funds, minority investors for a limited period, are only interested in projects with high development potential. Les Cigales are “investor clubs for alternative and local management of solidarity savings”.
For a significant investment or to support a promising profile of a future franchisee (eg an employee of the network), some franchisors offer to take a minority stake in the capital. This modality is debated because it is in contradiction with the principle of the franchise, partnership between “two independent companies legally and financially”. Doesn’t it amount to giving the franchisor a right of control over the franchisee? This “participatory franchise” is therefore only tolerated if it is limited in time, as a form of “carrying” allowing the newcomer to quickly redeem the brand’s shares in his company. Handle with caution.
An article from the “Franchise” special issue of L’Express. On sale since March 16
