How to secure funding for your franchise
One of the hardest parts of becoming a franchisee and buying a franchise, is securing enough money to get your business off the ground. While many of you will have personal savings, you may need to look into getting funding from a lender to ensure you have all the financing you need. Franchising is a relatively safe business model, and can provide lucrative returns. Because banks see franchising as less risky than setting up your own independent business, it is often easier to get funding. However, it is not guaranteed, and you still want to give yourself the best chance of success.
In this article, we provide our top tips for securing funding from lenders when starting a franchise.
Check out franchise opportunities with a low start-up cost
Fortunately, many franchise opportunities come with a low price tag when it comes to starting out. Some franchises require as little as £1000 investment. While you get started and set up, you may need to be able to cover your living expenses until your venture becomes profitable. If you can do this through a spouse or other family member, you may not need to borrow money at all to set up your business.
Consider opportunities that provide funding
There are some franchising opportunities where the franchisor can provide financial assistance, including financing options. This can often be an easier and more suitable option than borrowing from a bank. Your franchisor may offer you finance to cover the cost of equipment or even the franchise fee. Normally, the franchisor will not offer finance to cover the total investment – they need to know you are serious about investing in their business. However, they may offer anything between 15% and 75% of the overall investment.
Where you have your heart set on a franchise that does not offer franchising, your next option is the high street bank. High street banks are reliable and straightforward to deal with.
Prepare a solid business plan
When seeking funding, your business plan can make all the difference. Your business plan is the fundamental document that helps your lender make an assessment of your financial position, and how your business might become profitable.
You should ensure to include financial projections, your business experience and your background. You may also need to provide information about the location of your business, including where it will be home-based.
Your business plan should also analyse your competitors, including details about how you will set yourself apart to win business. Franchisors are generally willing to help with completing the business plan and business projections, but it will be your responsibility to make it clear to lenders that you fully understand how the business will operate and perform.
Some lenders don’t like template business plans, as it can seem like not much thought and effort has gone into creating the business plan.
Check your credit history
Where you have a bad credit score or credit history, it may cause you difficulty when looking for funding or getting a lease for your business premises. If this is the case for you, you may wish to consider speaking to a financial advisor or credit expert. They can help you to improve your credit score.
Speak to an accountant
It is worthwhile discussing your circumstances with an accountant or other professional before you seek funding from a lender. An accountant can offer you impartial advice on the cost of funding.
Be prepared to meet with lenders
A bank may offer to fund up to 70% of your total set up cost, but generally, the offer will be for around 50%. You will need to keep this in mind as you will be expected to find the remaining investment yourself. It is important that you fully consider how you will meet this cost before you meet with any potential lenders.
The majority of banks on the high street have a franchise department. This includes Barclays Bank (also a partner member of the Quality Franchise Association), Lloyds Bank and HSBC.
While you may think it best just to go with your own bank, it can be useful to shop around for the best deal. You can attend a franchise exposition, where there are typically many bank representatives who can discuss your options with you.
Alternatively, your franchisor may have an established relationship with a specific bank. It is essential to check this before making any decisions on a loan, as you may be able to secure a preferential interest rate.
Meeting with lenders can be intimidating, but being fully prepared with detailed answers about your business plans, your experience and your background can help. Preparing your business plan fully and understanding all of the elements that will make your business a success can help you secure finance from lenders.
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