New fund launched to stimulate franchising among SA’s young and previously disadvantaged
In order to stimulate job creation, Business Partners Limited today announced the launch of its Franchise Fund – an innovative platform backed by the Development Bank of Southern Africa (DBSA) – aimed at allowing young and previously disadvantaged entrepreneurs, with limited assets and access to capital, to qualify as franchisees.
The total Franchise Fund amounts to R107.03 million and consists of R48.65m from National Treasury’s Jobs Fund (R38.92m for financing and R9.73m for technical assistance), as well as R58.38m from Business Partners Limited.
According to Christo Botes, Executive Director at Business Partners Limited, a specialist risk finance company for formal small and medium enterprises (SMEs) in South Africa, the Franchise Fund aims to create jobs through entrepreneurship via franchised businesses. “Purchasing a franchise in South Africa can be quite onerous given that the franchisor normally requests a 50% own contribution. This fund will provide affordable franchising opportunities to those who would otherwise not have had the opportunity to acquire a business.”
Botes explains that the Franchise Fund is only open to franchisors who have been accredited by SA Franchise Warehouse and Business Partners and that comply with certain minimum requirements, such as proper founding documents, full Franchise Association South Africa (FASA) membership and accreditation, successful track record and subscribing to jointly support the new franchisees.
He says that the Franchise Fund financing model also requires a minimum own contribution of 10% of total financing from the entrepreneur. “Government’s Jobs Fund finances 50% of the total financing requirement, less the own contribution, and Business Partners Limited finances the remaining 50% of the total financing requirement.”
The Franchise Fund has certain key deliverables over the next 2.5 years, according to Botes. “Our key outcome is to provide funding, training and mentorship to 125 viable and long term sustainable franchises, with most applications for finance ranging between R600 000 and R2 000 000, and in the process also facilitate the creation of more than 700 jobs. These newly employed individuals will not only be empowered as a result of the training they will receive, but also build a solid employment record.”
Botes adds that the challenge with start-ups is the technical assistance required and the affordability of the costs related to the support required. As a result, a portion of the funds from Government’s Jobs Fund have been allocated specifically for technical assistance. The funds disbursed for technical assistance carries a zero percent interest rate for the entrepreneur and this funding is only payable upon completion of all other business financing debt being repaid.
“The applicants, or franchisees, are required to undergo a thorough screening process and formal training program facilitated by SA Franchise Warehouse. This includes ensuring that the entrepreneur is sure of the franchise brand he/she wants to pursue, as well as whether the sector is in fact best suited for him/her.
“The next phase involves a five day training course which allows the entrepreneur to become acquainted with what managing a franchise outlet entails. This phase includes an analysis of the entrepreneur and a tough psychological interview to ensure the entrepreneur is committed to the project. Upon successful completion of the course, the entrepreneur, assisted by the SA Franchise Warehouse, has to prepare a business plan and application for funding, which is then submitted to Business Partners for finance.” He explains that the technical assistance programme continues after the funds have been disbursed, and includes daily analysis of key deliverables in the business, which will be monitored by a SA Franchise Warehouse specialist. This should assist in giving the entrepreneur and the business a reasonable chance of success.
The Franchise Fund, which officially began the process for applications at the beginning of 2014, has already completed its first few deals and drawn from the Franchise Fund. “To date, we have approved six deals and disbursed two deals.
“We hope that this concept will attract younger entrepreneurs in order to stimulate much-needed job creation. We have been funding small and medium enterprises for many years and through our funding have managed to facilitate the creation of many jobs. We think that by doing it in a different way – by providing financing at a lower cost, but with tighter controls through monitoring the business during its set-up and growth stages – we will be able to fund an individual who might not have qualified for funding or been able to start a business from a franchisor point of view,” says Botes.
Kobus Oosthuizen, managing director of SA Franchise Warehouse, adds that the existence of the fund allows potential entrepreneurs the opportunity to acquire larger franchises, based on the value of their own contribution, in relation to the type of business they would have qualified for using normal commercial funding.
“Franchising in South Africa represents a significantly smaller portion of the GDP (8%) in comparison to other first world counties, such as the UK and the USA, where franchising accounts for more than 50% of GDP. Taking into account that franchising directly employs around 300 000 people in South Africa, it shows the potential of effective funding and incubation models, such of the Franchise Fund, can be devised,” concludes Oosthuizen
For a list of franchise brands which have been accredited in terms of the rules of the Franchise Fund refer to www.safw.co.za