Why is the unencumbered capital requirement of franchises so high?

This is to ensure that the gearing of your business isn’t too high.


Remember, your business isn’t going to be immediately profitable, you may have slow months, and the higher your loaned percentage of capital, the more pressure there is on the business to pay it back instead of being able to redirect any profits back into the business to build equity.

The second reason is what is called “skin in the game”. When franchisors and the bank can see you’re prepared to invest a substantial percentage of the required capital with your own funds, it reflects your level of commitment.

Ethel Nyembe
About the Author
Ethel Nyembe has had a varied career ranging from Public Relations and Media to Banking. Starting with a media career that included radio and television (presenting, scriptwriting and producing) at the South African Broadcasting Corporation (SABC), she moved on to a position as an Account Executive in newsprint at Business Day. Ethel wrapped up an eleven-year media career as the Deputy General Manager for Sales and Marketing for Sunday Times in 2004. 2004 marked Ethel’s introduction to a career in banking, where she began a six-year tenure at First National Bank. In the first quarter of 2010, she joined Standard Bank, where she is currently the Head of Small Enterprise, Retail Banking, South Africa. Ethel is passionate about the entrepreneurial spirit South Africa holds, and has served on several business boards, as well as on the boards of co-operatives in the Johannesburg city centre and Economic forums in Gauteng. She has a keen interest in sport and the social upliftment of the community.

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