Four Tips for Securing Funding for a Franchise

Cara Squires, writer

Published at 08/06/2018, Updated on 23/10/2024 , Reading time: 6 min

Four Tips for Securing Funding for a Franchise — Photo © franchise-funding-tips.jpg

Beginning your franchising journey can be costly, and if your savings aren’t bottomless, you might think the investment amount is going to limit your options. In this article, you’ll discover the available funding options for new franchisees, along with four top tips for securing funding.

Before you make any moves, make sure you have all the information. Running a franchise takes research, preparation and investment, but it also comes with a huge wealth of support from your franchisor and franchise network. You might be surprised by how much opportunity is out there for you, if you take the time to find it.

How much do franchise investments cost?

The cost of running your own business within a franchise can vary massively, depending on factors like franchise size, franchise type and franchise location. That said, the average cost of establishing a franchise is £42,000 [British Franchising Association].

Franchise funding sources

The franchising industry is growing. In 2018, the number of people employed in the industry reached 621,000 - an increase of 10% in just ten years [British Franchising Association]. Finding the right franchise financing option is crucial, and there are several different sources to consider, including:

1. A bank loan

Most leading banks are willing to give funding support to franchisees, offering loans which cover 50-70% of start-up costs. Certain key factors will play a role in this process, including whether or not the franchise you’re joining has been successfully vetted, and whether or not you have a poor credit history.

2. The government’s Start-Up Loans Scheme

This is a government-run scheme in which new business owners will be offered a 6% APR loan, payable over a period of up to five years, that covers 100% of start-up investment costs. Applicants can apply for up to £25,000, though anything above £15,000 will be more challenging to obtain. Applicants can also apply for capital repayment holidays. As is the case with a bank loan, the franchisor will need to have a strong trading record in order for a franchisee’s loan to be approved.

3. Sector-specific opportunities

If you know you’re interested in a specific sector, be sure to look for applicable funding opportunities within that area. If, for example, you’re interested in starting a cleaning franchise, maintenance company Fantastic Services are currently offering up a grant of £1 million to 200 people, enabling them to start a Fantastic Services franchise following job or work loss due to the pandemic.

Our grant programme has been designed to help those who lost their job, self-employed tradespeople, as well as small businesses within the service industry, which were negatively impacted by the pandemic. The grant covers most of the expenses for starting a working franchise business with Fantastic Services. —Anton Skarlatov, Fantastic Services CEO and Co-Founder

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4. A Franchise Finance loan

In the words of Franchise Finance’s Chris Robert,

“All too often we see access to sufficient finance as a barrier to growth, with franchisees unable to fulfil the potential of existing operations or expand into new locations.”

That’s why, for existing or new franchisees, Franchise Finance has gathered together £50 million to loan out to franchisees in need. Amounts between £5,000 and £500,000 are available to borrow, and the repayment period is up to five years.

We have a 95% success rate in arranging finance for our clients and we’re now in a position to support many more people to achieve their long-term goals. —Chris Robert, Franchise Finance Business Development Director

Four tips for securing franchise funding

1. Research your costs

When looking into how to secure funding to start a franchise, you need to understand the costs associated with investing. Once you find a specific franchise that you’d like to work with, this will be an easier process. Research thoroughly, and know exactly what you’d be getting into. Some costs to look out for include:

Franchise package fees
Premises costs
Refurbishment costs
Installation of fixtures and fittings
Signage
Stock, tools and stationery
Equipment
Licenses
Communication costs
Marketing, promotional and advertising costs
Vehicle costs
Professional fees
Insurance
Staffing costs

>> Read more:

2. Create a solid business plan

When connecting with a lender, you’ll be asked for your business plan straight away. In order to ensure a smooth and successful application process, make sure yours is up-to-date and detailed. For franchisees, this process will be simplified by the blueprints of your franchisor, there for you to follow. Your business plan should include:

A summary - An outline of the business, including customer profiles and market competitors.
Your details - Your age, your name, your legal marital status and your contact information.
Your experience and skills - Think of this section as an abbreviated version of your CV, presented to help the lender understand your skillset and trust in your ability to make your new franchise location a success.
Operational costs - Outline the costs for the premises, stock and equipment required to run the business.
Operational plan - Explain the staff positions required within the business, and who will fill each of the roles.
Marketing plan - Explain your marketing strategy. Often, franchisees will again be following the franchisor blueprint for this step.
Financial projections - Include cash flow and profit and loss projections.
Amount of loan required - Detail the amount which you would like to borrow.
Investment - Detail the amount which you plan to invest in the franchise.
Personal finances - Lay out your credit history and any existing debts.

3. Choose a lender

Choose your lender carefully, and make it, preferably, someone with experience in the world of franchising. Most banks have a dedicated franchise financing department that will be willing to help you. Ensure that, even with an experienced and widely-trusted lender, you carefully read all terms and conditions before signing any agreements, and shop around before making any final decisions.

4. Prepare in advance to meet your lender

Figuring out how to secure funding for a franchise is all about preparation and research, and so is the process of actually securing it. Before meeting with your lender, ensure that you’re informed, organised, and armed with all the documents you need.

The right opportunity is waiting for you in the franchising industry

Starting a franchise is time-consuming and intense, and figuring out what to do at each step along the way can be difficult, especially for new business owners. As you navigate the franchising industry, it’s reassuring to know that funding is readily available from a range of different sources, and so is support. Explore Point Franchise’s UK franchise directory to discover the huge range of UK franchising opportunities on offer.