Financial experts deliberate funding opportunities for franchises in Nigeria

Franchises are rapidly increasing and the option to finance the business through acquiring a debt has become more popular since a franchise as a business model alleviates most of the risk that is associated with new businesses, analysts have said. Therefore, entrepreneurs seeking to set up franchises have several debt options to finance their businesses. Future finance owners could consider and explore asset loans, trade finance, project finance, MSME fund and guarantee schemes, said the analyst.

The various financing options address various business needs, for instance the MSME fund is a dedicated development fund available to SMEs at a single digit interest rate and it is only available to businesses in production/manufacturing and Agri-value chain and can be utilized to fund asset acquisition, expansion or trade finance,” says George Ogbonnaya, group head: SME Banking, First City Monument Bank.

Ogbonnaya will speak at the SME and Franchising Nigeria Exhibition and Congress, organised by Informa Life Sciences Exhibitions.

The event will take place for the first time on December 2–3 2015 at the Eko International Convention & Exhibition Centre, Lagos, Nigeria.

The asset loan is collateralized by equipment. If a significant amount of capital equipment is needed, the purchase of the asset could be financed through a bank loan.

Trade finance signifies the financing of trade. It concerns both domestic and international trade transactions. A trade transaction requires a seller of goods and services as well as a buyer.

Various intermediaries such as banks and financial institutions can facilitate these transactions by financing the trade. It includes such activities as lending, issuing letters of credit, factoring and export credit.

“The eligibility for funding depends on several criteria, the credibility of the promoters and business sponsor, the ability to sustain business operations as exemplified in the management capacity, test the franchise model and past finance performance, business profitability and the ability to absorb the funding cost and other expenses, the size of equity brought into the business by the promoters relative to the debt, and finally the Primary and secondary repayments must be clear,” concludes Ogbonnaya.

SME and Franchising Nigeria are supported by governmental bodies SMEDAN, NOTAP, NIFA and NASME. The two most popular funding options for franchises in Nigeria are commonly equity and debt, a combination of the two is usually utilised. Franchises are rapidly increasing and the option to finance the business through acquiring a debt has become more popular since a franchise as a business model alleviates most of the risk that is associated with new businesses.

Entrepreneurs seeking to set up franchises have several debt options to finance their businesses. Future finance owners could consider and explore asset loans, trade finance, project finance, MSME fund and guarantee schemes.

The asset loan is collateralized by equipment. If a significant amount of capital equipment is needed, the purchase of the asset could be financed through a bank loan. Trade finance signifies the financing of trade. It concerns both domestic and international trade transactions. A trade transaction requires a seller of goods and services as well as a buyer. Various intermediaries such as banks and financial institutions can facilitate these transactions by financing the trade. It includes such activities as lending, issuing letters of credit, factoring and export credit.

“The eligibility for funding depends on several criteria, the credibility of the promoters and business sponsor, the ability to sustain business operations as exemplified in the management capacity, test the franchise model and past finance performance, business profitability and the ability to absorb the funding cost and other expenses, the size of equity brought into the business by the promoters relative to the debt, and finally the Primary and secondary repayments must be clear,” Ogbonnaya observed.

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