Steps to Secure Franchise Financing
You did the research, chose your favourite franchise and you see yourself on a one-way road to success. The future really certainly looks rosy. But, wait - now comes what is one of the hardest parts of starting a franchise – getting financing for your dream business. There are three options that you are available:
• Financing from a bank
• Financing from non-bank sources - the government, insurance companies and building societies
• Financing from the franchisor
Financing from a bank
First we will look at getting financing from a bank and the types of financing the bank offers. Before you approach a bank you need to have these two elements handled:
1. Business Plan
A well-rounded business plan is vitally important. Without one any bank or lending institution will be reluctant to finance you. We have an informative article on common questions about the franchise business plan for more details.
2. Good Credit History
Secondly, franchisees need a good credit history. A bad history has implications for a number of things, including securing a loan and signing a lease for your office. Anyone with bad credit should consult an expert who will help them assess alternative options.With your business plan and credit history in order you can approach the bank.
Franchise funding options from a bank
So how do you get started with a bank? Meet with them and present your business plan. You need to explore the following options with them including: fixed rate loans, variable rate loans, overdrafts, business cards, asset finance and invoice finance. Ask your bank which is most suitable for you. For long-term funding franchises generally choose loans and for day-to-day expenses over drafts are used.
This interview with Mark Scott from NatWest may shed some light on financing from a bank’s perspective and what they are looking for before they lend to a franchisee.
Financing from non-bank sources
The government, insurance companies and building societies
How do you qualify? Grant eligibility generally is based on the following factors – the location of your business, business size, your industry sector, purpose of the grant and whether you are eligible for support for specific groups like women, minorities, young people etc. More information about eligibility.
Government initiatives for small businesses
The Enterprise Finance Guarantee:
Available to small business start-ups that would not normally qualify for a loan, the government have pledged to guarantee a certain percentage of the start-up costs for new businesses.
Small Loans for Business offers loans of up to £50,000 to small and medium-sized businesses that have viable business plans but have been refused bank finance.
Finance for Business offers flexible finance solutions such as loans and equity finance for businesses with viable business plans that are unable to get support from commercial banks and investors.
More information is available on the Businesslink website.
Insurance companies and building societies:
These organisations don’t have a banking license and therefore they don’t take deposits or offer normal banking facilities like overdrafts. The advantage is that they are less restrictive with their lending criteria.
Financing from the franchisor
How do you find out if your franchisor offers financing? We have taken out the guess work for you. So, when you browse our directory of franchise opportunities, it will indicate in the top part of the profile if the franchise offers a direct financing option. Generally larger franchises offer financing, although, as always, there are exceptions to the rule.