Buying a franchise can often be an appealing way to become the owner of a business and your own boss whilst also having the support of an established brand. There may be an opportunity to receive financial support from franchisors to help with the start-up costs, but you may also need to explore traditional finance options to assist with the purchase. However, where do you start?
Lenders and funding options
Lenders will likely have different approaches dependent on the franchise and their appetite at the time. Generally, high street lenders will have a bespoke product or service geared towards franchises. Franchisors usually provide business reports and performance data to these lenders, which enables them to build a policy around a specific franchise.
There are alternative options available where high street lenders are unable to support. These can come in the form of unsecured or working capital funders, sometimes known as alternative lenders. The other option may well be to leverage existing assets whether that be residential properties, BTLs, commercial investments or even leveraging existing trading business to raise the necessary funds.
Cost of borrowing
Over the last few months, we have seen the Bank of England base rate reducing by 50 basis points and the general feeling amongst economists is that we may see further reductions through 2025. As the cost of borrowing reduces, it becomes a more viable option when buying businesses, not only from the operator’s perspective, but also from the lender’s perspective. Ultimately, borrowing money for a business purchase is never easy, but lower rates of interest may allow lenders to loosen the purse strings a little.
With the introduction of the Growth Guarantee Scheme, designed to support access to finance for smaller businesses in the UK as they look to invest and grow, some lenders have the support of 70% Government-backed guarantee which may also help when seeking funding.
What do you need to prepare?
Now more than ever, lenders are relying on relatable experience and robust forecasts and business plans. Whether buying a trading franchise or looking to open a new one, you will likely have the support of the franchisor to produce this for the lender in a format that they are used to seeing.
Preparing for the purchase is key. Here are some things to think about:
- Know the brand, competition and customer base
- Your working history and experience – the more relatable the better
- An understanding of the franchise you are looking to purchase, both financially and non-financially
- A robust business plan that includes financial forecasts and modelling
- Engage with the franchisor to establish a relationship prior to purchase.
It is important that you surround yourself with the right advisors, from accountants to solicitors, brokers to consultants, to ensure that you give yourself the best chance of achieving the funding you require.
