How to finance your franchise

You’ve decided on the franchise you want, you’re looking at the application pack, and then it hits you, how are you going to pay for this investment?

With careful planning there are a number of ways to get investments required in ways that ensure you make a success of your franchise.

Finance for a franchise investment

All franchises require an initial investment to buy into their business model. These can range from as little as £500, all the way up to £1 million.

If you don’t have the initial cash available to finance your franchise (a very common hurdle for most people), you might be left wondering ‘how am I supposed to finance this?’.

Loans from the bank

The good news is that due to the reliability of franchises to become successful (9 in 10 are profitable), banks are keen to provide credit to potential franchisees.

To finance your franchise you will need at least one third of the investment to come from your own capital.

This means that you will need to have at least some of your finance available in cash to make up the rest of the fee.

Banks will want to know three things:

  • Do you have a business plan?
    • If you can demonstrate that you have carefully mapped out your plans, banks can see where you want to go and how you can make the business a success.
  • How much can you put in?
    • By investing your own money, not only will you have to take out a much smaller loan, but you can also show that you are willing to commit your own assets and therefore have a greater intention to succeed.
  • Can you ensure the business will be a success?
    • Whilst franchising has a higher success rate than going it alone, banks will need to consider the opportunity you’re looking to invest in, along with your motivations behind investing in that particular franchise.

Start-up grants

The Enterprise Finance Guarantee is available to any person who has enough money to finance part of the cost of the franchise, but does not have enough collateral to finance a loan.

Since 2009, the government has assisted over 18,000 small businesses by underwriting up to 75% of the loans that they have taken out.

Based on your location, you may be eligible for a whole range of grants and schemes. To see if you can apply for them, check out the government list here.

Three points to remember

  1. Find a franchise to suit your budget – careful planning can make the point of entry surprisingly lower than you may have thought.

  2. If you don’t have the start up cash, banks are finance friendly and will be able to assist you if you can prove you are worth their investment.

  3. The government has schemes available that could make finance available to you.

Now that you’re familiar with the financial elements involved in franchising, let’s take a look at Understanding the Franchise Agreement.

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