Franchisees who rely on financing to fund their business are undoubtedly concerned about the news [1] in February that the cost of business loans keeps rising. Finance experts predict that the number of businesses becoming insolvent due to an inability to afford the repayments of their loans will rise this year.
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Options Available
Franchisees who are concerned about their ability to repay their business loans should start by discussing their concerns with their lender to try to find a mutually acceptable solution. This may mean changing from a floating rate to a fixed rate, which could be a higher monthly cost than you are currently paying but is guaranteed not to change for the term of the loan, offsetting the uncertainty about what may happen next in the financial markets.
Some lenders may be willing to adjust the terms of your loan, allowing you to only repay the interest with an arrangement to re-commence paying off the capital at a later point in time. Until you begin open and honest discussions with your lender, you will not be able to progress. Instead of risking the business that you have worked so hard for, start these conversations early.
You should also have a conversation with your franchisor to let them know that you are concerned about your ability to make loan repayments and pay your franchise fee and royalties. They may be able to propose a suitable solution to ease the pressure and keep you operating.
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Future Planning
A financial crisis probably wasn't in your initial business plan, so now it is time to revisit your plan and make amendments where necessary. You will need to review your budgets and financial projections and make new assumptions about future borrowing and the cost of credit.
You should consider a range of different scenarios to give you a worst case, best case and most likely outcome, from which you can triangulate your figures to give you a reasonable estimate of what it will cost to keep your business operational through the recession.
As part of this planning, you should identify all risks that your business faces and consider which ones you should actively mitigate and which you will monitor.
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Maintain A Positive Outlook
2023 is set to be a tough year for everyone in business, but it is important not to show this to your customers. Maintain a positive outlook and seek out opportunities. Work closely with your franchisor and other franchisees within your network to identify savings and efficiencies. It is essential to discuss your concerns with friends, family and trusted colleagues as keeping them to yourself will not solve them and could adversely impact your health.
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[1] https://financialpost.com/personal-finance/debt/bankruptices-proposals-renegotiate-loan-terms-rise-q1#:~:text=Borrowing%20costs%20have%20risen%20precipitously,target%20of%20two%20per%20cent.
