Franchise Asia April 2017

Franchise Viewpoint
also financial institutions, crowd funding providers, venture
capitalists, angel investors and individuals who are not affected
by the current economy and still have money to lend. What is
more, however, there have been some changes from traditional
business funding procedures in the SME industry. For instance,
the recently announced Securities Commission Malaysia (SC)’s
regulated peer-to-peer (P2P) financing framework is a good
example, making Malaysia the first country to regulate P2P
financing in ASEAN.
The good news is that because franchising business is always
recognised as a proven formula into a successful business than
simply starting up something from scratch; and undoubtedly,
many investors and lenders are happy to provide you a decent
amount of initial investment provided you have created a unique
and proven franchising business concept or have been accepted
by a reputed local or foreign franchisor. In my observation,
nevertheless, there is also prearrangement in that you may need
to find at least one-third of the total startup funding by yourself
as the investors or lenders may lend you only the other twothirdor
half for your business requirement as a business loan.
Preparations for Financing
Funding available for starting or growing a local business
in Malaysia should increase considerably ensuing the
announcement of Startup & SME Promotion Year 2017. While
tight credit rules continue still, funding is available out there
for those come with solid business plan, sound financing
strategy, good credit and patience to ride out lengthy business
pitching and approval process. I have summarized here several
financing considerationsthat startup franchise business owners
and franchisees can explore before approaching any investors
and lenders.
Consideration 2: Think About Equipment Leasing
Dividing the total capital expenditure (CAPEX) you would need
for funding is a profound decision – by having five parts or more
such as franchise fee (if any), equipment, inventory, property
and operation expenditure (OPEX), to get started using different
sources to fund your entire franchise setting, instead of trying
scarcely to secure only one source. For instance, equipment
rental or leasingmakes financing more accessible particularly
when your initial equipment investment is significant.
Consideration 3: Assistance from Franchisors (or Franchisees)
While considering certain legal requirements applicable to your
franchise business, due diligence is another consideration to
prove for the funding of a franchise business. For example,
as a potential franchisee, ask yourself if you have spoken
and checked with your franchisors for discounted or deferred
franchise fees or alternative inventory sourcing? As a potential
franchisor, did you seek recommendations from several
franchisees in the same system that how they came to funding,
material sources and contacts?
Let’s go back to the basic for your financing matters.
Before approaching a bank, investor or others for your financing
requirements, you must have these two fundamentals to
beattended carefully:
Consideration 1: Think Like an Investor
Most investors and lenders whom I met before always seek
for minimal risks and good risk mitigation planning, making
them feel comfortable beyond the Ringgits and cents. More
importantly, they would prefer a realistic plan pitching for more
funding rather than an impracticable plan seeking lesser. That
said, a detail action plan that clearly states the capital required
to start and expand a franchise business according to precise
business objectives and initiatives on a month-to-month basis
is essential.
Franchise Business Plan & Related Documents
A well prepared 3-year franchise business plan together with
practical and extendable business model and sound financial
forecast is extremely important. Not forgetting the powerful
7-minute pitching deck – it is your essential fundraising tool
which concisely articulates important enquiries from potential
investors about your business. Lacking one any bank, investor or
others will not consider to fund your business.
Good Credit History
Getting funding undoubtedly requires a good credit history, be it
from a bank, a financial institution or an investor. What is credit
score? In brief, your credit score is what banks use to evaluate
and determine the credibility of your financing application
through their internal credit score measuring method. In other
words, your chances of securing a business loan from banks
may vary on the bank you choose. Unquestionably, a good credit
Franchise Asia • 2017 Vol 33
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