Buying a franchise

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rupert7

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I have been approved to purchase a joint venture franchise business.
The purchase price is €800,000.
The bank is willing to loan the total amount but requires me to have 10%.
Due to have two NE apartments which we have pumped a lot of our savings into we don't have much savings and certainly not €80,000.

I am looking for suggestions on how I can get around this.

Do the banks want it to be from your own savings where they will want to see evidence that you have saved it up rather than been given the money from another source?

I was thinking of looking for an investor who will put up the €80,000 but not sure what type of return would be reasonable in such a situation???

Don't want to share any equity or need them to have any dealing in the business, just to put up the deposit and get it back with interest over 5 years or so.
Is this a realistic option and what type of a return would a inverstor need in such a situation?
 
Interesting, to say the least. Regardless of the franchise and what it is, returns for this kind of investment would be in the double digit % returns. A person or company making this investment would want to work very tight to legal terms on the outset. Not a cheap franchise where you may need some kind of Keyman Insurance.
 
Hello,

Is there any potential for releasing equity from the apartments, or failing that could one be sold to help raise the funds needed ?

Edit - sorry, it has just occured to me that "NE" may stand for Negative Equity, in which case forget the original comment related to the properties and also consider if taking on more debt is the right move for you, at this time

I agree with Johnny1234, a double digit return would definitely be required for this sort of private investment proposal, alongside detailed legal agreements etc. Obviously, the qualify of the franchise and the structure of the investment would influence, but if you were asking me for a loan of €80k to go into something like this, which appears to be a new venture and where you are not even prepared to offer me equity in the business or any involvement, I'd be thinking 20% plus, if I was willing to invest at all.

johnny1234 said:
Strength of a Franchise plus charge on assets which are already owned
Click to expand...

I expect the lending bank would have a first charge on all assets and giving due consideration to depreciation, potential forced sale etc, there's zero equity there for any private investor to rank after the bank.
 
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I'm sorry but I find this crazy advice. The OP is in NE and wants to borrow 90% from the bank and another 10% from somewhere else.

In addition we have no idea if the NE is important or not or whether the properties are performing or if there is other income/debt etc.
 
Well if the OP wished to state the franchise, we may all comment on the proposal. This is a forum to try and help others, not the SVDP.
 
johnny1234 said:
Well if the OP wished to state the franchise, we may all comment on the proposal. This is a forum to try and help others, not the SVDP.
Click to expand...

Yup, like you I am working initially off the positive.. given he / she is talking about 800k, I'm assuming it's either a franchise with leashold / freehold included, or a national / regional franchise for a recognised brand.

Regardless, if it turns out that NE is Negative Equity, then the original poster needs to be a bit more realistic, if they are in negative equity and have pumped most of their savings into those properties and have limited / no reserves left, then bringing in a new equity based investor or reducing the proposed franchise investment must come back on the table. Lots of questions now popping up here, Bronte is right to raise a flag.....
 
Thanks for all the help.

We have about €50,000 NE left on an apartment in Dublin but the rent is more than paying the mortgage at the moment. Second apartment is just about neutral equity now.

The franchise is a very well know national franchise and its a joint venture partnership 51% 49% in their favour.

The bank said that I needed 10% but didn't go into any details of whether it needed to be from my own savings or not.

I am just curious if I was to look for an investor where would be the best place to find one.

The franchise company only want to deal with me rather than me + investor and would be assuming its all my own money which is the reason that I would not be able to offer the investor any equity.
 
Best of luck with the franchise but if I was a potential investor I'd be worried that you have no skin in the game. The banks may have similar concerns. They will want to see where the 10% has come from.

I agree, the returns required would be double digit:

  1. You aren't making an investment
  2. You can't proceed with the business without my help
  3. The promise of double digit returns isn't backed by anything. There is no guarantor. Even if your business has a slower start than expected, you may struggle to repay the loan.
An investor would prefer equity than that kind of risk.



Steven
www.bluewaterfp.ie
 
Sorry, Rupert, you have stacked the odds against this working. No Investor is going to give an owner free gratis to watch something that could end up in free fall from Day 1. Coupled with this most investors would demand equity. The fact that there is no offer in writing from a Bank makes the entire thing look quite doubtful. Unless there's an offer in writing from a Bank, you're living in Walter Mitty land. Sorry, not for me. Might as well place my money on a Paddy Power race sheet, without a Tip.
 
I don't want to name the franchise for fear they will see this but it's a hugely successful national brand and this particular store has performed well for the last 20 years even through the recession, so it's not a very risky venture.
Given that, what level of equity would an investor be looking for?
 
There is no need to name the brand. It's obviously good enough for a bank to have offered you 90%. But I find it strange they do so with your NE.

In simple terms you are putting up zero, and someone else has to put in 80k.

Obviously you are borrowing a heck of a lot if money, but the bank seems to think this is fine, even with your NE, but it's odd to me they would do so. Maybe you both have great jobs.

But have you experience running a business. I realise with a franchise they will help you and train you. They don't want you to fail obviously. I presume the return is worth the risks.
 
And sorry to say this, but Talk is cheap. Unless you have an offer in writing, there's no offer at all.
 
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