Our franchisee fee is R200 000 and is due to the franchisor once we sign up. We need a 20 percent deposit for our business loan. If we pay our franchise fee prior to paying the loan deposit, we will not have sufficient funds to put down for the loan. Do we pay our franchise fee before or after we get our loan?
Both the fee and the business loan are equally important. However, note that the franchise fee of R200 000 will need to be paid for the franchisee to be accepted by the franchisor, and a bank will not pay out a loan before receiving confirmation that the franchisee has been accepted by the franchisor. A bank will also take guidance from the franchisor with regards to the gearing of the business, when deciding on the loan amount.
The deposit or own contribution of a potential franchisee is normally between 40%-60%, depending on franchisor requirements. If the franchisee has only a 20% own contribution at this stage, a bank will also liaise with the franchisor upfront to clarify whether franchisee status will still be granted.
In this case, the potential franchisee should speak to the franchisor upfront with regards to the potential lack of funds to meet both needs. This should also be disclosed in the application when applying for the franchise.