Buying a franchise: preparing your bank finance application

Joining a franchise network does not guarantee a loan. The bank is financing an independent business, run by a prospective franchisee and operating in a specific market. Your application therefore needs to explain the transaction, justify the amount requested and show how the business will repay its debt. Here is how to turn your documents into a clear, verifiable finance application.

1. Present the project, not just the brand

Start with a brief overview: the business activity, proposed location, whether you are starting a new business or buying an existing one, the timetable, the total cost and the funding required. Your bank adviser should immediately understand what you are buying and which business will be taking out the loan.

Next, outline your background. Link your experience to the practical responsibilities of running the business: staff management, sales, financial management, organisation or customer relations. If you lack certain skills, explain how you will acquire them and who will support you. Acknowledging a weakness and offering a credible solution is better than presenting an overly reassuring picture.

Clearly distinguish between the strengths of the brand and those of your local business proposal. National brand recognition proves neither that there will be enough customers at your location nor that you can run the outlet successfully. Include an overview of the franchise network, but focus your explanations on the location, target customers and how you will organise the business.

If you are buying an existing business, also specify what you are acquiring: its business assets and goodwill (known in France as the fonds de commerce) or shares in a company. This distinction changes the scope of the bank’s assessment, particularly in relation to the company’s debts and commitments.

2. Support each funding requirement with evidence

Prepare a sources and uses of funds table. List the expenditure required for the project on one side and the funding sources on the other. The two totals must match.

Under uses of funds, identify in particular:

• the purchase price if buying an existing business;
• the initial franchise fee and any separately charged start-up services;
• equipment, fit-out and installation costs;
• security deposits and professional fees;
• opening stock and the cash needed during the start-up phase.

For each significant item, state the source: a quotation, proposed contractual terms, an inventory or an estimate clearly labelled as such. Clarify the VAT treatment with your accountant so that you do not confuse a final cost with a temporary cash outflow.

Under funding sources, separate your personal contribution, the bank loan requested, other borrowing and any potential financial assistance. Applying for financial assistance does not mean it has been secured. State the status of each application and make contingency plans in case it is refused.

There is no universal statutory minimum percentage for a personal contribution when buying a franchise. Requirements depend on the bank, the risk and the financing structure. Document where your contribution comes from and whether it is available, rather than relying on a threshold presented as compulsory.

3. Demonstrate your ability to repay

Your application should include financial forecasts tailored to the project: a projected profit and loss account, a cash flow forecast and a financing plan. Have these prepared or checked by a qualified accountant, while making sure you can explain the main assumptions yourself.

The bank will want to understand, in particular, how much remains available after operating expenses, taxes, your remuneration and necessary investment. An accounting profit does not automatically mean there is cash available to meet loan repayments.

Set out the proposed repayment arrangements and their practical implications: estimated monthly repayments, interest costs, any insurance and bank charges. If you are considering a repayment holiday, specify whether it covers only the principal or also the interest. A repayment holiday postpones a payment obligation; it does not remove it.

Include a less favourable scenario, such as a delayed opening or slower initial sales. The aim is not to produce numerous forecasts, but to show what measures you could take and where their limits lie.

If you are buying an existing business, include the latest available accounts and, where necessary, recent interim accounts. Explain the differences between past operations and your plans, particularly where remuneration or certain expenses will change.

4. Coordinate contractual documents and the bank’s timetable

In France, Article L. 330-3 of the Commercial Code, introduced by the Doubin Law, governs pre-contractual disclosure where a trade mark, brand or trading name is made available subject to an exclusive or near-exclusive commitment. Article R. 330-1 specifies the information that must be provided.

Where these rules apply, the pre-contractual disclosure document and draft agreement must be supplied at least twenty days before the agreement is signed or any advance payment covered by these rules is made. This statutory period is not a deadline for the bank to respond. Plan the two timetables separately.

Provide the bank with consistent, dated documents. Any change to the purchase price, agreement or planned investment must be reflected in the financing plan. Finally, distinguish between a positive discussion with an adviser and written approval setting out the loan conditions.

Key takeaway: prepare an application you can explain and defend yourself, with every expense justified, the status of every funding source made clear and every repayment affordable within the project’s realistic financial capacity.