How to get funding to start a franchise
You may be in a position to use your own money to start a franchise, but it’s more likely that you’ll be needing to raise funds to get off the ground. Every new business requires money to get started, and this includes franchises. You need to think about the initial franchise fee, the purchase of stock and establishing premises, and the long-term operating costs. In short, you will probably need a healthy amount of starting capital. Here’s how you can get funding to start a franchise.
Researching your costs
Purchasing a franchise is safer than building a business from the ground up. A franchisee has an established business idea to work on, and a proven model to follow. You get training and ongoing assistance throughout and can draw on the experience and advice of a network of franchisees. For this reason, banks are generally more confident to lend for franchise start-ups than other businesses.
Before you begin shopping for loans, you need to have a full understanding of the costs that your new franchise will involve. The costs can include:
- The initial franchise fee
- A training fee
- Rent advance for premises
- Costs of fitting your shop
- Leasing vehicle(s) if applicable
- Purchasing initial stock
- Purchasing equipment
- Promotion and marketing
You will need enough working capital to see you through until you reach the point where your business makes a profit. So, if you want to secure funding, you must carefully prepare your application.
Create a business plan
Lenders will definitely need to see a detailed business plan. Putting one together for a franchise can be less complex than for a conventional start-up, as you can draw on lots of existing information on the franchisor’s website. Include the following details in your business plan:
- Executive summary
- Personal information
- Franchise overview
- Operating requirements
- Marketing plans
- Financial projections
- Borrowing requirements
- Capital stake
- Personal finances
Choose the right loan and lender
Target lenders with experience working with the franchise sector. Most banks include specialist teams for franchises, and they often have experience with other franchises to help give insight regarding your projections and time frames. There is lots of funding to choose from for franchises, from secured, fixed-rate loans to variable-rate start-up ones. There is also finance for short-term assets and the leasing option. It is wise to shop around for the best loans and the right interest rates for your situation.
Other great sources of finance include government grants and initiatives, or even crowdfunding online. Research what is actually available to you, and make sure you are thorough and honest about your business plan. It pays to be well-prepared, so put the work in early to give yourself the best chance of success.
To find out more about buying a franchise, take a look around the Franchise UK website.