While you may have some of your own money to invest in setting up the new business and often franchisors will offer financial assistance to cover some of the start-up costs, it’s likely you’ll need additional franchise finance. So, what sources of finance are available to a franchisee?
Traditional bank funding
High street lenders offer bespoke products and services, such as business loans and unsecured loans, to finance your franchise. Most, if not all franchise businesses report their performance and KPI’s to lenders, so most of the detailed information required by the bank to secure a loan will be available before a franchisee engages with a lender. Alongside this, they will require your financials and a business plan.
Securing a loan via an alternative lender or ‘challenger bank’ is another option. These lenders do not offer a specific policy or product for franchise businesses; however, we are seeing more franchisees using alternative funders as they are often able to offer more competitive terms compared to high street lenders, who have tightened their lending policies in recent years. They could also be a good consideration if you’re looking to expand your portfolio of franchised businesses.
Other funding options
Depending on the amount needed, other funding approaches could include securing a personal loan, equity release loan from residential property, unsecured loans, asset finance, vendor loans or more.
What will lenders be looking for?
Lenders will be looking for certain criteria when evaluating whether to provide a franchisee with finance, favouring candidates with relatable experience and a solid business plan.
Key lending criteria includes:
- Information about the franchise brand
- Details of your working experience
- An overview of the franchisee’s assets and liabilities
- A solid business plan, including business forecasts
- Details on whether the purchase is an asset or share sale
- Acceptance from the franchisor to operate a business under their banner
Preparing the necessary financial and operational information in advance will help your chances of securing finance. It might also be useful to check whether your franchisor has an existing relationship with a specific lender.
Most importantly, you should make sure that you are surrounding yourself with a team of experts, consisting of an accountant, solicitor, advisors and a broker, who can support you through the process of securing finance and setting up your new business.