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Financing A Franchise...

Financing a FranchiseWhen you consider buying into a franchise system, it's a great way of ensuring that you are working with proven methods that will ensure success in your business. It helps you to avoid some risk that is associated with starting your business from scratch.

However, in order to buy into a franchise, it often requires a substantial investment. In order to invest in a franchise, you will often have to get financial assistance directly from the franchisor or from a bank that the franchisor may have a relationship with already.

Since franchising is a recognised industry, many of the high street banks have created franchising departments or teams to assist a potential franchisee or franchisors with the investment required to start up a franchise. These banks can be helpful in the process of setting up a franchise, as they will be sources of valuable information about financing a franchise.

Before you even start thinking about investing in a franchise opportunity, ask yourself two very important questions:

  1. How much can I afford to invest in a franchise?
  2. What return on investment do I need to cover business expenses as well as personal living expenses?
Keep in mind that the total cost of investing in a franchise includes fixed capital and working capital. This will be necessary as you get your business off to a start, and will determine how much you need to borrow in order to invest in the franchise. There are two types of costs that you need to be aware of with a franchise:
  1. Initial costs (that includes the franchise fee so you can trade under the brand, cost of setting up a location and/or getting a vehicle with livery)
  2. Ongoing costs (day-to-day business expenses)
This will help determine what kind of financing you need. Generally, banks will lend franchisees up to 70% of the initial costs for a well-established franchise. That means you only need 30% to get started! Newer franchises that are yet relatively unknown may not command such a loan, and banks may offer to lend a smaller percentage of those initial costs. Remember, when you go in to discuss your loan, you will need to have a business plan on hand. Don't be scared if you're not familiar with how to create one of these! Franchisors often help you with creating a business plan, as they have experience in doing so. Review Franchise Direct's Financial Assistance directory for more resources on financing a franchise.
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