Money talk with leading Barclays bank executive

Oliver Dallaway, Barclays’ head of franchising, gives us the inside track on the bank’s commitment to the industry, its new funding product and offers advice on approaching a lender for finance

Tell us about Barclays’ involvement in the franchise sector.

Barclays has been working with franchising clients for many years, but in 2018 launched a specialist franchising team.

As of October 2020, I was appointed head of franchising, with a key focus on continuing to grow our involvement in the sector. This includes sharing our industry knowledge, expertise and insights with both franchisors and franchisees, as well as providing the vital financial support they need. We also understand the importance of promoting the sector and do this through events and initiatives with franchisors, as well as the production of thought leadership articles.

For us, it’s also important to be actively involved with the British Franchise Association. Their promotion of ethical franchising, developing credibility, sustainable growth and governance in the industry aligns to Barclays Franchising’s ethos.

What kind of financial support do you offer franchisees and franchisors?

Barclays has numerous financial support options for franchisees.

The one I’m particularly excited about is the new franchising proposition developed this year, which typically allows an individual franchisee to borrow up to £250,000 unsecured. This funding is available to a new franchisee starting out, purchasing a resale or an established franchisee looking to expand.

The proposition has been built around our understanding of franchising being a partnership and the finance packages are bespoke for each brand, so they know we understand their business model.

What this means for the franchisor is that Barclays creates bespoke credit packages for franchisees, bespoke pricing and a single point of contact from the franchising team to manage their franchisee’s relationships.

For those franchisors or franchisees requiring more than £250,000, we have bespoke arrangements to support their brands.

There is additional financial support for franchisees, including asset-based lending such as asset or invoice finance, commercial mortgages and the opportunity to support accepting payments and day-to-day spending through Barclaycard.

Larger operators can access the Barclays SME Debt Finance facility, which can fund up to £10 million against cash flow lending, while those requiring finance of more than £10 million can be supported through our Barclays International Banking teams.

Is it true banks are more likely to lend to franchisees than independent start-ups?

In short, yes. Franchise brands usually have more favourable terms than an independent start-up too. There are several reasons for this.

Firstly, the franchise brand has a track record. This allows a bank to understand how well the existing network has performed and provides a good understanding of how new franchisees are likely to perform.

The other key aspect is the franchisor-franchisee relationship. It’s so important for a bank to understand this and successful franchise brands provide an excellent support model for their franchisees. This gives the bank comfort from a lending perspective, because the franchisee will have support throughout their franchise journey.

A great example of this is the excellent support provided by many franchisors to their franchisees throughout the pandemic.

Finally, there is strong due diligence completed by the franchisor within its recruitment process. This is important to a bank, as it provides a good understanding that franchisees have gone through a rigorous selection process and been carefully chosen to be part of the franchise network.

Since the pandemic, have banks taken a more cautious approach to lending?

Since the launch of the government’s lending schemes, we’ve facilitated more than £29 billion into the economy to support over 370,000 businesses across the UK, which also includes our franchise clients.

We’ve been open for lending both through the government schemes and our normal lending products during the pandemic. We’ve lent hundreds of millions to small businesses through our normal lending products during 2020 and continue to do so in 2021. We continually review our lending policies to ensure we’re providing suitable financing to small businesses in order to aid the UK’s economic recovery.

Barclays Franchising has actually increased its lending approach to this sector in 2021.

We understand that franchising is a growing sector and expect more individuals to look into this option when considering starting their own business. This is why a new franchising proposition was created this year, ready to support those looking to get into the market.

How much will a bank typically lend a franchisee who wants to invest in an established franchise brand?

Barclays will typically lend a franchisee either 70 per cent or 75 per cent against an established franchise brand and up to £250,000 unsecured. This lending variation will depend on the bespoke agreement Barclays holds with the individual brand.

Our lending allows us to fund against the total setup costs, meaning we understand the total investment and working capital required for brands. This ensures franchisees will not be worrying about cash flow once they’re up and running.

What’s your best advice for someone who requires bank funding to purchase a franchise?

Ensure you have early conversations with your bank. Your franchisor will be able to put you in touch with the franchise unit of the bank - I would recommend this because you’ll be able to speak to a franchise business development manager who understands the brand.

However, before you start the early conversations, my best advice to someone purchasing a franchise is to consider the impact of this purchase on your personal situation. You will likely need to contribute 25 per cent-30 per cent of the total set-up costs, so how do you plan to fund this?

Also, consider your current income and expenditure and compare this against the financial forecasts. Some good questions to ask yourself are: ‘How realistic will it be to continue to earn the same from your franchise from day one?’ and: ‘If there is a shortfall, how do I plan to cover this?’. This is important to consider because a new start-up franchise will take longer to reach the sales growth you require in comparison to a resale.

It’s crucial you understand what salary you can take from the business initially and how this can increase once it starts to grow. This is important to a bank, as it assists it to understand the cash flow situation of your business and helps assess your loan affordability.

After the turbulent time the industry has endured because of the pandemic, how do you see franchise businesses performing during the next 12 months?

Overall, I would expect franchise businesses to perform well over the next 12 months. However, this will only happen if their business plans are updated and regularly reviewed.

A key tip would be for franchisees to have a more agile business plan, which allows them to adapt based on macroeconomic and political issues.

Furthermore, for franchises to perform well over the next 12 months it’s important to consider how consumer behaviour has changed and how they should serve existing and new customer bases.

A lot of franchises that saw sales growth during the pandemic embraced new technology. This helped them to communicate with customers, suppliers and colleagues. It can also help you analyse your business in a more intuitive way, through data analytics.

To remain competitive and see positive financial performance, it’s important to make sure your offering remains relevant and you constantly review it so that it’s relevant, but also resilient to change.