Approaching your bank for funding

Approaching your bank for franchise funding

Franchising can be a sizeable investment, with some franchisees paying hundreds of thousands of pounds.

However, given the right preparation, franchising can become surprisingly more affordable.

Most franchises only expect between 30-40% of the initial franchise fee to come from your own savings (or ‘liquid’ assets). The rest can come from banks in the form of loans and, given the high success rate of franchises, banks have become much more open to loaning to potential franchise business owners.

So, how do you go about securing funding for your dream?

Preparation is key

Though banks are increasingly likely to offer you some form of financial support with your franchise, it is still important to prepare well and thoroughly before you meet with them. They will want to know all about the franchise. Fortunately, most franchises will help you with this preparation, providing the main documents that you will need to prove there is a business case.

In addition, banks want to know about you and your financial situation. They will need to know your credit history, so make sure you have this to hand when you go to meet them along with your business plan.

It’s recommended to ask yourself how you will be able to pay back loans and how much you can provide from personal savings and how much you will be able to contribute towards set-up costs.

What options do you have?

There are many ways that banks can offer you support as a franchisee. It is always important to research these thoroughly to find the best one for your situation;

  • Loans – Take care with loans. If you apply for a ‘fixed rate loan’ you will have one fixed rate for repayments over a set period of time and the size of these repayments will always remain the same, but with ‘variable rate loans’, the size of your repayments can and will fluctuate according to interest rates.
  • Overdrafts – Better suited to short-term borrowing, overdrafts allow for greater flexibility when it comes to borrowing. The downside is the interest rates can be an additional cost further down the line and the overdraft can be removed by the bank at any time.
  • Asset finance and leasing – Again, this is best for short-term borrowing. As the name suggests, you will borrow funds against any assets you have, like an inventory for example, and banks will usually have their own leasing companies for you to use for vehicles.
  • Invoice Factoring – Like with variable rate loans, your repayments will fluctuate but in this case, what you pay back will depend on the strength of your invoices and how much business you are doing. Take care here; it is often an expensive route.

Know your business

The best way to secure funding from your bank is simply to know all aspects of the franchise, your finances and your skills. As mentioned above, banks will want to know all about you and your business, so it is important to do your research thoroughly. You will also need to have some form of security for large loans, so make sure you have the capacity to pay these back.

When speaking to your bank, be confident and ask about anything that you are unclear about, such as late repayment fees and any restrictions.

Want to find out more?

If you’re still unsure about financing your franchise, have a look at some of the other options open to you here.

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Sandy Purewal

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