Franchising: preparing an information pack for banks

When you turn an existing business into a franchise network, funding new outlets becomes a practical concern. A sound business plan alone is not enough: the bank may also assess the franchisor’s reliability and the quality of the business model on offer. Preparing a verifiable information pack helps you respond to the lender’s requests, without taking over the franchisee’s role or guaranteeing credit approval.

1. Document who is behind the project

An information pack for a bank is not a sales presentation. It must enable an outside party to understand who the franchisor is, what experience it has gained and what resources it devotes to franchisees. For a business just starting to recruit franchisees, it is essential to distinguish the history of the business from the history of the franchise network: years of running company-owned outlets are not the same as years of supporting franchisees.

Prepare a concise fact sheet covering:

• the franchising company’s identity, ownership structure and people responsible for the project;
• its business activities and a timeline of key company milestones;
• company-owned and franchised outlets, clearly distinguished;
• available accounts and contact details for the person responsible for financial administration;
• planned arrangements for training, assistance and operational support;
• ownership of, or rights to use, the trade mark under which the business operates.

Every document should show when it was last updated. If the franchising company has only recently been incorporated, say so and explain its relationship with the business that developed the original operation. Do not automatically attribute another entity’s results, assets or contractual track record to the new company.

2. Make existing business data useful

The bank must be able to distinguish actual results from assumptions and targets. Data from company-owned outlets is therefore useful only when its context is clear. A revenue table with no information about the trading period, location or staffing arrangements can create misleading expectations.

For each example used, state the period covered, how long the outlet has been trading, the key features of the premises and any circumstances that affected its results. Highlight any conditions that would be difficult to replicate, such as ownership of the premises or operational work carried out by the founder without payment at normal market rates.

Do not present the best-performing outlet’s results as the results a future franchisee should expect. If you use aggregated data, explain which outlets are included and which are excluded. Also separate actual figures from estimates for the new outlet.

For investment costs, gather up-to-date quotations, specifying their validity periods, taxes, delivery, installation and any exclusions. A documented cost is easier to assess than an indicative figure in a brochure. The candidate’s financial assumptions must nevertheless be developed for their own project, with their advisers.

3. Align the documents with Italian law

In Italy, franchising is governed by Law No. 129 of 6 May 2004, ‘Rules governing commercial franchising’. The contract must be in writing to be legally valid. In addition, before establishing a franchise network, the franchisor must have tested its business model on the market.

The information pack for the bank does not replace the franchisor’s obligations towards the prospective franchisee. Article 4 requires a complete copy of the contract to be signed, together with the annexes required by law, to be provided at least thirty days before signing. Information about the franchisor includes, at the prospective franchisee’s request, accounts for the previous three years, or from the date the business began trading if more recent.

In practice, have the banking documentation checked to ensure that it accurately reflects the contractual commitments: initial investment, fees, services and deadlines must not convey different meanings in the two contexts.

Also agree which documents may be sent to the lender and through which channel. Avoid sharing the operations manual or confidential information indiscriminately: an outline of the organisational arrangements may be enough to explain the support system, without handing over the full body of operational know-how.

4. Handle the application without promising credit

Set up an internal procedure for bank enquiries. A designated contact should collect questions, check responses with the finance team and advisers, and retain the versions of documents sent. This prevents different people from providing inconsistent information.

The franchisee must separately present their own financial position, available funds and funding requirements. The franchisor’s financial strength does not remove the need to assess the individual applicant, nor does it eliminate business risk.

If there is an arrangement with a bank, describe exactly what it covers. A dedicated application channel is not the same as approved funding. Avoid promises about interest rates, security requirements or timescales that depend on the lender and the individual application.

Before the candidate makes commitments that would be difficult to reverse, encourage them to clarify the terms, timing of funds being released and any outstanding steps with their bank and advisers.

In practice: prepare a dated information pack, separate facts from forecasts and appoint someone to take responsibility for responses. Your role is to make the project assessable, not to promise that it will receive funding.