How to get a franchise loan

Research your franchise costs

First of all, make sure you fully understand the costs involved in getting your franchise set up. These costs include:

• The initial franchise fee: This is a one-off fee to buy-in to the business and it can range from hundreds of pounds to a million or more.
• Equipment: You might have to cover the cost of equipment such as machinery.
• Initial stock: This might be bought from the franchisor or an approved supplier.
• Premises: This will be one of the biggest expenses and could include your rent as well as the cost of fitting out your shop. 
• Vehicles: You might prefer to buy a vehicle outright, but most people take out a lease or hire purchase agreement, so you’ll need to fund the initial deposit.
• Working capital: To cover the initial salaries and other business expenses until you start generating cash. 
• Promotional costs: To cover the cost of local advertising and marketing. 

Create a franchise business plan

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:

• Executive summary: A brief description of your business and its objectives, as well as an overview of how it will work.
• Your experience and skills: Outlining how your past experience will help make your business a success.
• Overview of the franchise: Including your target audience, size of market and competitor analysis.
• Business operation: Including your premises, stock, equipment and vehicles.
• Management: Outlining who will fill key roles in your business.
• Marketing strategy: Showing how you plan to attract and retain customers and how you will advertise the franchise.
• Financial projections: Including cash flow and profit and loss forecasts.
• Borrowing needs: Outlining how much money you require.
• Capital stake: Outlining how much money you will be investing yourself.
• Personal finances: Including your personal assets, income, expenditure and debts.

Find and choose a franchise loan and a lender

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, such as Lloyds, NatWest, Barclays and HSBC, 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 and the government-backed startup loans scheme.