Financing a new business- advice on apoaching banks

Manaquin · #1 (**permalink**) 15-06-2008, 22:40

Hi there,

i'l be succinct as possible.

Im going to open a sandwich bar franchise(not subway!) in manchester.
I need aprox 90k. i have approx 55k
I will be going as a LTD company.

I would like to ask the advice of ppl who have been there done that so to speak regards approaching banks for business loans. I have a business plan and financial forecasts etc. I just want to know what to expect when i start approaching financial institutions and for any advice of what to do / not to do etc generally.

any advice is appreciated!!

James Smith · #2 (**permalink**) 16-06-2008, 09:09

On paper that ratio is going to be a tough ask, this is at the max end of their lending ratios. 50:50 is normally fine, 2/3rds takes some doing especially in the current climate.

So how to do it?
Well look prepared. Ie you need a good business plan, and by that I don't mean a 100 page monster, a 4-6 page summary and lots of appendices is normally the way around to do it. Ie short enough to read, heavy enough to show your detailed research. Fundamentally you need to be able to prove that they will get their money back and there is plenty of slack in the plan. Ie you wont be asking for another £20k and a big overdraft in 6-12 months. They will look in particular at your retail experience - ie you need to prove you can run this thing and not flounder for 12 months and go bust. They will also be looking heavily at security - ie they WILL insist on personal guarantees, ie essentially secured on your home. If you have no equity they probably wont lend at this level TBQH.

If you are not great at the numbers think about paying your accountant to come along. Not cheap but they will know more than the bank manager about the numbers and be able to answer awkward questions. I don't work like this, but some local accountants are very close with local bank managers which can help enormously when trying to borrow. its a bit "old school" but it does still happen, especially in market towns etc.

Hope that helps

Regards,

Manaquin · #3 (**permalink**) 16-06-2008, 17:45

Hi James and thanks for that.

Ok, i know that 50:50 they will lend me the cash as tested the water last year.
A few things that are niggling at me that i would like answered also.

* Does the quality of service vary from bank to bank?
* The franchisor has recommended some banks that its franchisees have dealt with in the past, so are familar with the brand. Does this have credability?
* The interest on loans. I am assuming that this will vary also from bank to bank? Or is this different for business loans as appose to personal loans.
* the Small Firms Loan Guarantee - going with a lender that uses this scheme be a good idea to get more than 50:50
* Also, i havent decided if i am going to buy the equipment or lease it. If i buy it, i could offer this as security against default?
* Going as a Limited company as appose to Sole Trader, does thishave a factor in granting a loan?
* Would using a financial broker be a good investment, or would I be ust as better off by using my own brain?

Thanks again for the advice so far

James Smith · #4 (**permalink**) 16-06-2008, 19:25

As best as I can:

* Does the quality of service vary from bank to bank?

A - yes massively. And from branch to branch. And from individual to individual. Your fab bank can turn into a bad bank just because your contact who made it all seem effortless moves on.

* The franchisor has recommended some banks that its franchisees have dealt with in the past, so are familar with the brand. Does this have credability?

A - it might help a little but only if you are dealing with the same decision makers.

* The interest on loans. I am assuming that this will vary also from bank to bank? Or is this different for business loans as appose to personal loans.

A it will vary and crucially is negotiable to an extent. Borrowing privately is cheaper generally than for business.

* the Small Firms Loan Guarantee - going with a lender that uses this scheme be a good idea to get more than 50:50

A - might help but tends to just reduce the lenders risk but not really help you very much.

* Also, i havent decided if i am going to buy the equipment or lease it. If i buy it, i could offer this as security against default?

A - what you are spending your money on does matter but generally specific asset backed finance might be a better route and get your ratio back down. Hard to say.

* Going as a Limited company as appose to Sole Trader, does thishave a factor in granting a loan?

A - no - its all going to be personally guaranteed anyhow.

* Would using a financial broker be a good investment, or would I be ust as better off by using my own brain?

A - hard to say. They might help a little in negotiating rates but fees might well eat up the saving for something like this as your borrowing isn't that a huge sum.

Hope that helps!

IP2 · #5 (**permalink**) 16-06-2008, 20:00

Quote:

* The franchisor has recommended some banks that its franchisees have dealt with in the past, so are familar with the brand. Does this have credability?

This does actually have a lot of credibility. A Franchiser with a proven track record with a bank, can be a much safer bet, than a standard business set up and I am slightly surprised that the franchiser is not putting you in touch with certain people in the bank, or to put that another way, I would say that would ring alarm bells!

Could I also just clarify, are you suggesting the whole financial package you need is £145k or £90k? I took it from your original post the total was £90k, but from your response that it was £145k?

I don't know how far down the road you are with this, but that is a hell of a set up fee for a sandwich bar and I think you might do well and save yourself a lot of money if you speak to Saracen (on this forum)!

stephen6848 · #6 (**permalink**) 17-06-2008, 08:05

Quote:

Originally Posted by Manaquin

Hi there,

i'l be succinct as possible.

Im going to open a sandwich bar franchise(not subway!) in manchester.
I need aprox 90k. i have approx 55k
I will be going as a LTD company.

I would like to ask the advice of ppl who have been there done that so to speak regards approaching banks for business loans. I have a business plan and financial forecasts etc. I just want to know what to expect when i start approaching financial institutions and for any advice of what to do / not to do etc generally.

any advice is appreciated!!

Right now I don't know much about it but if i will get any information i will tell you.

saracen · #7 (**permalink**) 17-06-2008, 19:30

Quote:

Originally Posted by stephen6848

Right now I don't know much about it but if i will get any information i will tell you.

Nice input

Manaquin, what is the franchise name ?

By reading your post id also agree with IP2 that the total is £145k by the way you've worded your question, however i believe you mean you need to find £45k?

The franchisor will recommend a bank - such as RBS - and the franchisor should assist you with a business plan if you require but the onis is on you, not the franchisor, for approaching the bank. Personally i do not see any alarm bells ringing at all from the franchisors perspective.
If it is a proven brand this will certainly give credibility by the bank as long as its the bank recommended by the franchisor. That way the bank will already have thorough knowledge of the business model.

Another alternative is a personal loan. Could be cheaper than a business loan but for obvious reasons you couldnt divulge the loan was for a business. Very risky tho.

If anything further i can help you with, guidance etc just shout.

James Smith · #8 (**permalink**) 17-06-2008, 19:43

Missed the point about the borrowing - if its £45k required and you have £55k then quite honestly that should be a lot easier to pull off than £90k out of £145k. I would even look for £55k to match the funding to give you some breathing space. One little trick is to get the second £10k as an additional agreed facility rather than an outright loan so you don’t have to pay interest on it right away.......

Manaquin · #9 (**permalink**) 19-06-2008, 06:37

Sorry for the confusion.Im a rush as about to leave for work lol.

No the total amount of capital i need is 90k. I already have approx 55k in shares and cash.

The franchisor is great. they have been very communicative, helpful and gave me names off ppl to speak with at the bank.

There called Baguette Express.

il add more details when i get back.

thanks again

IP2 · #10 (**permalink**) 19-06-2008, 18:03

That is cool, then you might want to also read this thread if you haven't seen it...
Subway opening a shop in Hawick