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Funding a franchise

Funding a franchise

Categorised in: Ask Nigel    Posted: February 15, 2016

We have always had good relationships with all the major banks and in my 22 years’ experience I have found that banks are far keener to lend to good reputable franchises rather than general start-ups.

Given the research that consistently tells us four out of five independent start-up business go bust within two years whilst 90%+ of franchises are still operating it is not surprising to see the disparity in funding between start-ups and franchises.

Funding options change all the time – the market changes – bank policy changes – the environment changes so what you read from now on is very definitely from my own experience.

By and large for an independent start-up, banks will fund up to 50% of the total cost.

For a proven business franchise, banks will consider up to 70% of the start-up costs (AND I have known them go a tad higher on occasions).

In addition, up to certain thresholds loans are available ‘unsecured’ and in nearly all cases the interest payable is more competitive for a proven franchise business than for an independent start-up.

When you start a franchise you will naturally depend on the advice and support of the franchisor and they should be able to guide you to the appropriate lenders.

Most high street banks have specialist staff to deal with prospective franchisees and most franchise companies will already have negotiated funding arrangements with a cross section of banks.

Franchisors have been down the lending route many times so do take advantage of their experience and ask their advice.

Whilst banks are keen to lend to prospective franchisees, no bank will lend you money unless they are convinced you have a sound business proposition.

To this end you need to write up a Business Plan.

Again seek advice from your franchisor – they will have helped write business plans many, many times, over the years.

The business plan essentially details what you hope to do, how much money you need to do it and how you propose to pay the money back.

In my experience all banks will have specimen business plans you can use – alternatively your franchisor may also have a template they will let you have.

My advice is don’t put the business plan together on your own – take advantage of the professionals out there – your franchisor, a good accountant (I know a rare breed indeed!) and your solicitor.

There is more to a business plan then getting funding.

Certainly the bank will be interested in your long term financial forecasts – but your family will be much more interested in whether you can afford a holiday next year!

Producing a plan together will focus your mind on all aspects of the business and clarify exactly what you need to achieve from the business.

Drafting the plan is one thing but the delivery to the bank is just as important

Many years ago a Senior Franchise Manager at a major bank once told me

About the author Nigel Toplis

Nigel Toplis is the Managing Director of The Bardon Group. Nigel sees his key role as providing the vision and direction for each of the businesses, developing new income streams - across the board, recruiting customer focused and passionate Franchise Owners and providing business and management support to my Franchise Owners.

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