• Access funds, commence Franchisee business;
• Funds at a reasonable cost;
• Flexibility in payments;
• Default does not have to result in loss of the business;
• Fixed Investment Cost;
• Dissociate Finance from Transaction Accounts;
• Minimise cost of funds; and
• Retain control of the business.
Any Franchisee of a Franchisor with Pre-Approval is eligible, subject to normal Franchisee Operator assessment and the availability in the Fund, for an investment from the Fund for up to 90% of franchise.
The Fund will offer investment on a Franchise Prime Cashflow Investment or Franchise Subprime Cashflow Investment basis.
For Prime Cashflow Investment the interest rate shall be a coupon rate plus a small residual holding in the business.
A Subprime Cashflow Investment provides up to 90% of Franchise Costs on a higher coupon rate plus a larger residual holding in the business.
Because we make an at risk investment, not just a loan, and because it is a cashflow investment Elcano understands and appreciates the need for a small business to grow its cashflow and the cyclical nature of business. As such we have greater flexibility in coupon payments on the investment .
Banks and other lenders are not able to offer this type of flexibility, therefore, making the Fund’s investment an attractive alternative to a bank.
Where even the added payment flexibility outlined above are not enough and the Franchisee does default on its payment commitments this does not trigger withdrawal of the funding and the immediate loss of the Franchisee Operators business.
Instead default events are all independent of each other; no single default causes the Franchisee Operators loss of the Franchisee business.
Elcano is in the business of providing investment funding, not wanting to own and operate Franchisee businesses, as such even if one or more defaults have resulted in the Fund owning Penalty Shares in the Franchisee as soon as Coupon Payments are restored to the scheduled Targets all previously issued Penalty Shares go back to the Franchisee.
The cost of the investment, the Coupon Rate, is prescribed in the Constitution of the Franchisee Entity and therefore is fixed for the life of the investment (this assumes no defaults on the investment and ignores the impact of the small residual holding in the Franchisee Entity which has no fixed coupon entitlements, i.e. will only have a small share in profits when there are any).
Most banks today see SME transaction accounts as being of far greater value to customer profitability than their small business lending. This is in part because of the value they can potentially gain from managing the superannuation accounts of staff, as well as their personal borrowing.
By dissociating the business finance allows the Franchisee Operator to negotiate for the best possible transaction banking arrangements without being held hostage by who will give the finance needed for the business.
To make sure they don’t pay more than the least required for the investment the Franchisee Operator may make Coupon Payments greater than the Coupon Rate with all excess payments accruing forward against the total Coupon Payments and once that is fulfilled those excess payments will cut the principal invested to end the investment early.
Although the Fund shall invest up to 90% of the Franchisee Establishment Costs it only requires the upfront issue of 33% of the shares of the Franchisee Entity and no management control (on completion of the finance this reduces to only the small residual number of shares).
Please Note: The following information for the Elcano Franchise Fund 1 represents broad details of the structure of the fund. These details may vary for each unit class offering of the Fund. Due diligence should be undertaken before majking an investment into the Elcano Franchise Fund 1.
1. Recruitment of franchisees was identified by 77% of franchisors as a significant challenge, making it the largest challenge for franchisors (Asia-Pacific Centre for Franchising Excellence 2013, Franchising Australia 2012, Franchise Council of Australia)
2. Asia-Pacific Centre for Franchising Excellence 2013, Franchising Australia 2012, Franchise Council of Australia.