How to finance a franchise

If you are considering taking on a franchise, the most important consideration will usually be how you can finance it. This will generally be through applying for a bank loan; however, to obtain a loan, there are some steps you need to take.

Franchise finance

Franchise finance needs to cover the franchise fee and sometimes the equipment and premises you will need to run the franchise. It will also need to cover your living expenses until the franchise reaches profitability.

Generally, this finance will come from a bank loan rather than the franchise itself; however, alternatives exist such as grants from local enterprise partnerships or the Enterprise Finance Guarantee scheme.

Do you need professional advice?

If you have considerable expertise in business and the running and financing of franchises, you may not need professional support; however, for most people, it is strongly recommended. A professional such as an accountant will be able to help you understand the steps needed to secure the loan and what repayment costs are likely to be.

To find an accountant, use an internet search relevant to where you live; for example, the term ‘business accountants Tewkesbury’ will produce results such as https://www.hazlewoods.co.uk/expertise/business-accountants/tewkesbury.

Securing finance

To secure finance, you will need to provide a large amount of documentation and information. Check with your accountant exactly what you will need, which will include a solid business plan and the franchise projections the franchisor has given you. You will also need to show the legal structure of your business, such as whether you are setting up a limited company or operating as a sole trader.

Problems with securing finance can arise if you have a poor credit history or the franchise is too new for a bank to have confidence in its success. A bank may also not be happy with your business plan or consider your projections for turnover unrealistic.

Improve your chances of success by looking for a franchise that is a member of the British Franchise Association and accept any help you need in securing the finance for your franchise.

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