If you’ve decided to buy and open a franchise, it’s important to consider how you will finance it.
Page written by Rachel Wait. Last reviewed on July 22, 2024. Next review due January 1, 2025.
For most people, the best route will be sourcing franchise funding from a bank, but you’ll need to be able to prove that your business can be a success to be able to get the funding you require.
Buying a franchise can be a safer option than starting a business from scratch as you’ll be able to buy the rights to sell goods or services from a company that’s already established. But setting up a franchise doesn’t come cheap, so here’s all you need to know about how to get a franchise loan.
First of all, make sure you fully understand the costs involved in getting your franchise set up. These costs include:
Next, you’ll need to create a business plan as lenders will want to see this when you apply for finance. You should be able to get a lot of the information you need from the franchisor’s brochure or website, but your business plan will need to include the following:
Once your business plan is complete, you need to look for a lender that is used to dealing with the franchise market. Many high street banks have a franchise department and these will be able to support you with your franchise as well as offer funding. You might be able to borrow through a fixed rate or variable rate loan, or through asset finance and leasing. You could also consider an overdraft, but this is better suited to short-term borrowing as interest rates can be high.
Make sure you shop around and compare interest rates and finance options carefully to find the right one for your business. You can also look at finance such as government grants.
The amount you can borrow with a franchise loan will depend on a range of factors.
With established franchise brands, lenders will usually ask that you provide at least 30% of the business set-up costs and this needs to come from savings rather than personal borrowing. If the brand is less well-known, you might need to stump up more than this before a lender will be happy to offer you a loan.
Be aware that you will usually need to secure the loan against an asset – typically your home.
Your loan application is more likely to be turned down if you have a poor personal credit history, a poor business plan, if you don’t have an asset to use as security and if your projected turnover is deemed unrealistic.
Again, this will depend on several factors. These include the type of finance you choose and how much you need to borrow – this will depend on the sector of the business and how much is included in the franchise package.
It’ll also depend on factors such as your personal credit history – the better this is, the lower the interest rate you’re likely to secure.
You might want to use franchise funding to cover big expenses or to help improve cash flow. It can help cover your franchise fee, as well as the premises costs, initial stock costs, initial staff wages, branded workwear and marketing.
Keep in mind that you will also need to pay for business insurance. You might need to take out any of the following, depending on the type of business you run:
It’s sensible to seek professional advice before applying for any type of franchise finance. This will help you to work out how much you can afford to borrow and the best way to apply.
Here at Swoop we offer independent business loan comparison tables that let you compare interest rates, fees and term lengths to enable you to find the best loan for you and your business.
Register with Swoop to find the best financing option for you and let us guide you through the application process.
Written by
Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.
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