Entrepreneur Jim Penman, owner of the Jim’s Group franchise, says he is seeking around $10 million in funding to help potential franchisees pay for start-up costs, as well as pay down company debt and boost overseas expansion.
Penman, who intends to list the decades-old services business on the stock exchange this year, says with banks still cautious about funding potential franchisees for equipment and start-up costs, Jim’s Group is looking to step in with its own funding.
“There is actually a huge demand for franchises, but we lose hundreds of sales a year for lack of finance,” Penman said.
Questioned on who would likely step in with finance before the float, Penman he was “particularly interested in private equity” although Jim’s Group would talk with anyone who is interested.
With $25,000 a typical loan for start-up costs, Penman says the vendor finance would likely come with a high interest rate, but franchisees would be encouraged to refinance once they had done some good business.
Jim’s Group recorded revenue of about $450 million during the 2011 financial year. Demand at the group – which has 3,200 franchises across 28 categories including plumbing, mowing, pet care, accountancy and insurance – rose by 6% last year, but franchise numbers grew by 4%.
The comments come amid complaints that funding for small business, including franchising, has dried up since the global financial crisis, and is likely to become more expensive as new international banking standards kick in.
Vendor finance is emerging as a trend to combat weak access to finance and sustain Australia’s high franchising levels, with about one-third of franchisees at tool franchise Snap-on Tools Australia agreeing to the company’s credit program.
Nick Hudson, Snap-on Tools national franchise manager, told StartupSmart that the company had circumvented pressure on the retail model by investing much-needed funding into the system.
Jason Gehrke, director of the Franchise Advisory Centre, has said other funding models – such as work or lease-to-own programs, family funding, funding from successful franchisees, partnerships, and capital raisings for franchisors – will likely emerge to plug the gaps.
Daryl Raggatt, founder and managing director of asset finance broking firm Enterprise Finance, told SmartCompany earlier this month that banks are “generally doing a pretty poor job” when it comes to SME finance, with provider numbers falling since the global financial crisis, and more hoops to jump through to get funding across the line.
“Take the franchising side of things, groups like Subway or Donut King, it’s so much more difficult to get things done there,” Raggatt said.