Why prospective franchisees can count on banks for support in times of economic uncertainty
Although the UK economy appears to be in better shape than many financial pundits have been predicting, there clearly is more uncertainty than ever for most businesses. And if there is one thing banks hate, it’s uncertainty. Fortunately, this may still leave franchises better off than other entrepreneurs.
While the government is busy wrestling with Brussels about leaving the EU, banks will continue to finance businesses considered to be low risk. And that kind of low-risk enterprise is exactly what any good-quality franchise will offer. That's why potential franchisees are more likely than self-employed people to receive funding to set up a business from scratch. You have the backing of a proven business format and details of how similar franchisees operate to show the bank.
The first step of securing funding is to meet the bank’s criteria. This usually involves having not only roughly 30% of the money that you need to purchase the franchise but also enough to see you through the startup phase and the first few months of trading.
A good franchisor will help prospective owners put together a business plan and prepare a cashflow forecast to present to the bank. You need to be realistic about how much you will be able to afford to pay back each month, especially during the early days and how much working capital you will need to cover whatever outgoings and fees you will incur during the initial months.
HSBC sums it up like this: “As a franchisee, you should have a tried and tested format to follow, receive training and support from your franchisor and have access to a network of fellow franchisees for guidance. So although you'll own and operate your own business, you won't be doing it alone. All this support means that a bank is going to be happier to lend to startup franchisees than to other types of startups.”
Another avenue for securing funding is through the government's Start Up Loans scheme, which effectively allows you to apply for a low-interest, unsecured personal loan to help fund your new business. This is suited to those who do not have a large deposit. Nevertheless you’ll still be expected to have a line of credit at your disposal to see you through the early stages of the startup.
With more than 40 years’ experience in the franchise industry, I know that the main banks will always provide funding for good businesses and therefore, with interest at an all-time low, now is the very best time to get started as a franchisee embarking on an exciting future. Equally, the same applies to prospective franchisors who have plans to grow their successful business model through franchising.
So don’t let uncertainty hold you back. Instead dare to venture forward to fulfil your ambitions and seize opportunities. If you adopt this attitude, you can bank on it that the support you need is out there.