The Franchising Strategic Business Unit (SBU) is focused on supporting emerging entrepreneurs with limited capital to own a franchised business and

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1 Franchising Making finance available for the establishment of new outlets and the refurbishment of existing outlets, and BEE acquisitions of established and emerging franchised concepts.

2 The Franchising Strategic Business Unit (SBU) is focused on supporting emerging entrepreneurs with limited capital to own a franchised business and to assist new franchised concepts to expand, both in South Africa and the rest of the African continent, which will in turn lead to job creation, entrepreneurial development and small and medium enterprise development.

3 The IDC s role Established in 1940 as a self-financing state-owned national development finance institution, the IDC promotes entrepreneurship within South Africa, the SADC region and the rest of Africa through the building of competitive industries and enterprises based on sound business principles. Our main role as your investment partner is to assist you financially. The IDC structure Our operations (Projects Division, Industrial Sectors Division and Services Sectors Division) are streamlined into Strategic Business Units (SBUs) to ensure an industry-specific focus and the delivery of high quality, innovative services to both traditional and new customer bases. The IDC s advantages Selecting the IDC as your investment partner makes sound business sense.the IDC is the largest multi-disciplinary business evaluation group in Africa, offering: An exemplary track record in industrial development; A unique combination of resources; Over six decades experience across a broad base of projects; An intrinsic developmental focus and approach; Expertise in identifying investment opportunities; Neutral partnership; and Access to a network of innovative entrepreneurs, industry players, co-funders and the public sector. Franchising The IDC s Franchising SBU offers the following finance schemes to the industry: Wholesale finance to franchisors who can administer the process of on-lending funds to individual franchisees; Directly to franchisees that require funding of at least R1 million; and The above funding is available to established and emerging franchise systems;

4 And for established franchise systems that wish to expand into SADC and the rest of the African continent. Who may apply Wholesale finance to franchisors The Wholesale Finance Scheme is available to Franchisors who then enter into a cooperation or administration agreement with the IDC for loans to their small and mediumsized franchised businesses. Applicants seeking to apply for finance under this scheme must have the following characteristics: Good record of business development; Proven franchised concept; Strong financial position; Developed/Acquired a mentorship programme to assist emerging entrepreneurs to attain the knowledge and skills required to become competent business people; Sufficient skills and resources to implement its mentorship programme; Sufficient management information systems; and Minimum of at least five franchised projects to promote. Individual franchisees Franchisees applying directly to the IDC for finance should have been selected as a franchisee by an established franchise brand and should have been allocated a site. SADC and Africa Franchises that want to expand into SADC and the rest of the African continent must be established and should exhibit the same characteristics as a franchisor applying to the IDC for the wholesale finance scheme. In addition, the business must comply with IDC requirements for SADC or rest of Africa funding criteria. Funding criteria and terms Finance is made available for the establishment of new outlets, refurbishment of existing outlets and acquisitions by BEE groups; The business must reflect economic merit; Our products are tailored to suit the needs of emerging entrepreneurs with limited access to capital.

5 Minimum facility amount of R1million (could be wholesale for on-lending to franchisees); The finance is for a maximum period of six years, with repayments tailored to suit the borrower s cash flow, by taking into account the business start-up period; Interest rates are prime related and determined based on risk and development impact; Shareholders of the franchise business will be required to make an unencumbered cash contribution. The contribution will be determined based on the strength of the business model and must be acceptable to the franchisor; and The IDC generally requires franchisees to be operationally involved. How to apply Applicants should submit a detailed business plan to the franchising SBU to enable us to consider the application.

6 Business plan guidelines In constructing the business plan, the following information is mandatory to ensure the evaluation process is accelerated. Applications for either wholesale finance, funding to franchisees directly, or for expansion into SADC or the rest of Africa should include the following information: Application letter from the entity requesting financial assistance from the IDC specifying: the name of the entity that will be borrowing the finance (including relevant company or closed corporation details); the amount required to be borrowed, as well as the contribution from shareholders/members; Details of the shareholders/ members for the borrowing entity together with the shareholding structure including: full names and identity document numbers; detailed CVs; a letter of consent to perform credit checks on all individuals and related entities; and personal balance sheets for all shareholders/ members; Profile and description of the franchise business including an analysis of current and projected market conditions (including detailed description of products on offer, status of development, roll-out plan, any past failures as well as reasons for them, description of any relevant technology employed, intellectual property, patents, royalties, competitive advantages, SWOT analysis); Written confirmation from the franchisor confirming approval as a franchisee; A copy of the disclosure document and franchise agreement; Financial forecasts for at least three years, which include the budgeted balance sheet, income statement and cash flow statement. For wholesale applications, the same as

7 above for a typical operation of the franchise based on existing outlet figures; Financials of related enterprises owned by the shareholders/members; Highlight critical risks and mitigating considerations for the franchise, the market and the site; Market demographics relevant to the franchise including profile of customers, market share, market trends and information on the size and growth of the markets, which are to be served; Analysis of competitors including products, barriers to entry, customer base and site, which may include relevant research by the franchisor or a third party; Marketing strategy and budget for both the franchisor and franchisee (including overall marketing strategy, pricing, advertising and promotion, sales tactics, distribution); Detailed motivation for the forecast revenues in the sales budget; Details of selling expenses including all fees payable to the franchisor; Description of upfront and ongoing training provided by the franchisor; Details of the franchisor s aftercare programme such as monitoring of franchisees accounts and monthly store visits; Copy of lease agreements or alternatively an offer to lease document. Include detail on any other material contracts or agreements; Total capital layout for the franchise including a detailed list and cost of: plant and equipment; furniture and fittings; leasehold improvements; and any other items of a capital nature necessary for the franchise to operate; The number of people to be employed, their categories and related wage or salary. Include CVs of key staff; For wholesale applications attach audited financial statements of the franchisor for the past two years as well as latest management accounts not older than two months; For buy-in or takeover of an existing franchise business, by a BEE group, in addition to the above, please provide the following: Results of the due diligence carried out, motivating the purchase price proposed for the business; The shareholding to be purchased providing other relevant details; Detailed historical financial statements for at least two years as well as latest management accounts (not older than two months) for the relevant business. The IDC will require that the shareholders of the franchise business to be financed, invest an amount that is at least acceptable to both the franchisor and the IDC as unencumbered cash for the total investment required. Please contact our Franchising SBU, should you require more information.

8 Head Office 19 Fredman Drive, Sandown, 2196 PO Box , Sandton, 2146, South Africa Telephone: , Fax: Call Centre: GRAPHICOR 37092