THE current lending environment makes it extremely difficult to find funding that provides working capital for a stable or growing franchise.
While banks are generally willing to finance set-up, they often want an alternative funding source to fill any gaps. Now there is a new HMRC-approved source that avoids the need for guarantees and keeps franchisees in control of their own business; pension-led funding.
This form of finance, which has been used by more than 1,200 businesses, is perfect for a significant investment into a franchise operation. It was also recently estimated that by using pension-led funding, over £100 billion could be sourced directly through director/business owner pension funds in the UK.
Establishing pension-led funding for franchisees is a similar process to any other company, except the valuation of the business is primarily through the value of preference shares, which requires a limited company, rather than through other assets owned by the franchisor, such as Intellectual Property. Once valued, a Directors’
pension scheme is set up and a percentage of the funds loaned back to the business.
For James and Helen Gilbert, buying into the Sevenoaks Sound and Vision franchise, through their own company J & H Ltd, presented an ideal opportunity.
Mrs Gilbert said: “As the Watford store was up for sale there were no fit-out costs, so we took out a bank loan to get ourselves up and running.”
Initially business was good, then the market changed and turnover began to suffer. After seven years, despite paying off their bank loan and adding installation services to their portfolio, cash flow was still an issue.
The couple also wanted to relocate to more suitable premises in nearby Chorleywood. Their financial advisor presented a number of options, one being pension-led funding.
Once the required information had been released by their existing pension funds, the process of setting up a new pension scheme and then transferring funds into J&H Ltd was relatively smooth.
While the day-to-day challenges of running a franchise remain, James and Helen have removed their short-term cash flow worries.
Mrs Gilbert added: “For franchisees, this is a really good way of funding a business. If you have a pension pot that’s not working hard enough for you, why not use it to make life easier? I believe the money I worked hard to put away is now working for my benefit.”
Pension-led funding has been used frequently in conjunction with traditional forms of lending such as bank loans, across a wide range of business sectors.
Information 0800 0147 099 www.pensionledfunding.com