South Africa\u2019s economy is under significant pressure and, for a number of reasons, there is little promise that this will change in the near future.<\/p>\n
In May this year, the International Monetary Fund (IMF) predicted only 1% growth in 2017, up 0.2 percentage points from their previous prediction of 0.8%.<\/p>\n
Despite the economic challenges that businesses face,\u00a0franchising\u00a0is one sector that has consistently shown its resilience by performing well, says\u00a0Dumisani Bengu, head of franchising at Absa.<\/p>\n
\u201cAs a business model, franchising is very resilient because you are buying an established brand that already has a committed following,” he said.<\/p>\n
\u201cSouth Africans are very brand conscious, they like to know it is a stable brand and that they can rely on the quality.\u201d<\/p>\n
Bengu indicated that South African banks think the same way, although it isn’t the only factor considered when granting a loan.<\/p>\n
\u201cThere a many reasons why a franchise model is appealing to a bank,\u201d said Bengu. \u201cKnowing that the applicant will have a certain number of customers who believe in the brand is just one aspect.<\/p>\n
“Established brands also have tried-and-tested processes in the market, they have a mature and honed business model with track records and solid business projections.<\/p>\n
“They also offer solid support in the form of training and guidance from experienced people who will guide new franchisees through all the pitfalls. All of this means less risk,” he said.<\/p>\n
Because of the resilience of established franchises, banks and financial institutions take a positive view of such companies, Bengu said.<\/p>\n
“Existing relationships with certain franchises afford applicants preferential status when applying for finance.”<\/p>\n
Looking for a loan\u00a0<\/strong><\/p>\n \u201cBanks are in the business of selling money,\u201d said Bengu. \u201cThey always have the will to lend money to fund your operations, but they need to be satisfied that their investment is secure.\u201d<\/p>\n According to Bengu, the process starts with the bank assessing your level of risk, exploring questions such as:<\/p>\n Your worthiness as an applicant, however, isn\u2019t just about your credit rating or balance sheet, said Bengu.<\/p>\n \u201cGetting into any business is always an exciting experience, so people are always more likely to rush in without thinking everything through,\u201d he said.<\/p>\n \u201cPeople need to assess themselves honestly and thoroughly to determine if they are happy to spend an inordinate amount of time running that business. If they aren\u2019t passionate, their business will fail.\u201d<\/p>\n\n
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