If you aren’t able to get finance from the bank, for whatever reason, it’s worth knowing that there are several other sources you could research. With a little bit of homework, you can find other methods of raising the capital such as the funding sources below.
Remember that the areas covered in the previous section, such as the importance of your business plan, and the accuracy of your figures, are still crucial to proving to any kind of lender that your business is worth investing money in. With this in mind here are some of the best places, besides your bank, to go to for help in financing your franchise.
For many people, the paperwork and stiff competition involved in applying for a grant is enough to put them off. You shouldn’t be deterred however, as there are some great benefits to going down this route, should you be successful. The specific grant body where you apply to will usually depend on where you live in the UK. If you don’t live in Britain as such, it’s worth noting that the Scottish Parliament and the Welsh and Northern Ireland Assemblies also have departments which give grants to businesses. Some examples of bodies which give grants within the UK government include:
- Department for Business, Innovation and Skills
- Department for Employment and Learning
- Industrial Development Board
- Other organisations that award grants
- The European Union
- Regional development agencies
- Community organisations
- Local authorities
Grants typically cover a broad range of sectors, but applications are often subject to meeting certain criteria such as the business location, size and industry. Some grants relate specifically to SMEs and some to industries which directly address problems in the local area.
Very often, a grant will be awarded to provide for specific resources such as tools, training or recruitment, the end result being that you can grow your business further and the awarding body goes some way towards achieving their own objectives, for example encouraging enterprise among ethnic minorities. For this reason a grant is usually an option once your business is up and running, rather than for capital at the initial start-up phase. There are organisations which award grants to specific groups, such as:
- Young people
- Over 50s
- Entrepreneurs with a disability
An example of the kind of grant which may help a franchisee is the Rural Shop Support Scheme in Aberdeenshire, which awards between £500 and £7,500 to shops opening in rural areas where they are the sole provider of those goods or services. The grant also provides training advice and business counselling as part of the scheme.
Lastly here are some tips to bear in mind when searching for grants:
1 Spend time searching grant databases such as the government’s Business Support Finder website, or GrantFinder for the opportunities which match your needs. New grants will be added regularly so it’s important to keep up to speed. Subscribing to newsletters and setting up your won Google Alerts for the grants you’re interested in will help.
2 Read the fine print. Typically a grant application will take a lot of time to prepare, so before you do anything check that you meet all the criteria and that the end result will be something that will be of genuine benefit to your business.
3 Get advice from a third party. Since grant applications are often fiercely competitive, getting the advice of a professional before you submit should significantly increase your chances of success.
The New Enterprise Allowance
If you’ve been on Jobseeker’s Allowance for three or more months, and you’re over 18, you may be eligible for the New Enterprise Allowance which awards small loans to help those with a business idea with their start-up costs. Your local Job Centre will tell you more about the criteria and how you can apply. The maximum amount awarded is £1,000 so this route is more suited to those with low start-up costs.
Community Development Finance Institutions (CDFIs)
These are independent organisations whose aims are to encourage and create wealth in communities or areas which are disadvantaged, by providing individuals and small businesses with finance in the form of loans. These loans can help with working capital as part of your start-up finance, they can also be used for specific areas you need help with. Each of these organisations caters for a different type of business, individual or industry, so take some time to research the opportunities which may apply to you on the Finding Finance website.
There has been a growing trend in recent years for Business owners to source funding from several investors, through private websites set up specifically for that purpose. Another term for this is ‘peer to peer lending’. Websites such as Funding Circle allow you to pitch your business to potential investors in this way. It’s worth looking into as you can often choose from a range of investors, depending on who has the cheapest interest rates.
Friends and family
If a friend or family member offers financial assistance with your franchise, you may feel as though all your prayers have been answered. In reality, there should be the same arrangements in place as any other funding method – this means a contractual agreement for when you will repay the money and what, if any, interest you will pay. If the individual in question wants to be an investor, you must decide between you how much say they will have in the day to day running of the business. Your relationship will change, no matter what, so it is up to you as the business owner to manage that relationship as you would any other. Honour the funding/investor relationship by having the relevant documentation with you when you meet, and make the setting for your meeting a professional one. Be sure to discuss the issue of risk, and what should happen if, for any reason, you aren’t able to repay the money. Lastly, take into account how much they would like to be involved; even if they are giving the money to you as a gift, it’s likely that they’ll want to be kept informed as to what you’re doing with it, and when. This can go a long way towards preserving the relationship, both professionally and personally.
You may be lucky enough to find a business angel to invest in the start-up of your franchise. Business Angels are high net worth individuals who are interested in investing in businesses with a high potential to grow. Usually a business angel will have experience of the industry in which they are investing and will share their expertise. Typically, a business angel will want to invest in a business where:
- The market has a high growth potential
- There is a unique selling point and competitive edge
- The founder of the company has an excellent track record and relevant expertise
- There is a solid financial commitment on the part of the entrepreneur
- There is a good synergy between the interests of the business founder, the skills of the business angel and the proposals laid out in the business plan
To research the possibility of a business angel investing in your franchise, begin by searching online for those who deal with your specific location or industry. The UK Business Angels Association is a good place to start. Before you start your search, arm yourself with a solicitor, an advisor and a well thought out business plan.
Financial lease companies
If there are assets you need to purchase, for example equipment or a vehicle, for the operation of your franchise, a financial lease company can buy the item for you and lease it to you, in the form of monthly rental payments, from which they will stand to benefit from interest. At the end of the lease term you have the option to buy the item outright, for example by paying the final instalment before the end of the agreement. Types of finance available from these companies include asset finance, motor finance and consumer finance.
Should you find an investor interested in your franchise, there are some enterprise schemes which are designed to incentivise investors. For example, the HMRC Enterprise Investment Scheme and the Seed Enterprise Investment Scheme offer tax relief to investors, including income tax and capital gains tax relief. These are worth looking into in the interests of attracting investment.