What is Franchising Finance?
Buying a franchise is a popular way to own your own business without starting from scratch. However, there are still significant costs involved in getting your franchise up and running. You’ll need to fit out your premises, acquire the necessary equipment, hire and pay staff, plus pay royalties on your monthly gross income as well as an initial fee. Franchise funding is designed to help you manage these costs.
How Does Franchising Finance Work?
Here’s a quick overview:
If you want to set up and run your own franchise, there are several financing options that might be useful.
Business loans:
A secured or unsecured business loan is perhaps the simplest way to get the funding you need. The amount, payment terms and rate of interest will depend on whether you are a sole trader, a new limited company, or an established business owner seeking to branch out. Secured loans typically have lower interest, and you will need to use an asset as collateral. Unsecured loans may require a personal guarantee.
Asset finance:
This is a way to buy or lease the equipment and fittings you need without making a large cash payment upfront. Finance plans involve fixed monthly payments over a period of up to five years, including interest and VAT. You can also refinance assets you already own to release some equity that you can invest into your new business.
Invoice finance:
Invoice finance allows you to mitigate the impact of late client payments by assigning invoices to a lender, who immediately advances you 70–80% of the value. When the client pays up, the lender deducts their fee and forwards the rest.
Line-of-credit facilities:
Line-of-credit facilities such as revolvers are similar to a business overdraft. You can borrow money as and when you need it, up to a set threshold. You’ll pay interest only on the credit you withdraw, with fees accumulating each day.
How can I use franchising finance?
Business loans, asset finance and line-of-credit facilities can be used to fund any costs involved in setting up and running your franchise. Depending on the nature of the business and your existing infrastructure, these may include:
Franchise fees
Equipment and uniforms, fixtures and fittings
Hiring and paying staff
Stock, utilities, rent or purchase of premises
Franchise fees may be anywhere from a few hundred pounds to hundreds of thousands in the case of a massive global brand. It’s worth noting that franchise business loans can never cover 100% of the setup costs, but are limited to a maximum of 70%. You will need to find alternative funding for the remainder, whether that’s from savings, friends and family, or external investors.
What do I need to secure franchising finance?
Perhaps the most important part of any franchising finance application is a thorough business plan. This should include a comprehensive profit forecast, risk mitigation strategies and detailed evidence of your business’s viability. You should also outline the existing experience you bring to the franchise.
Lenders will pay close attention to your business credit rating and your personal credit history when assessing your application for franchising finance. It’s important to ensure that both are in good order before you apply.
Franchise Finance
Secure tailored funding to launch, purchase or expand a franchise business.
Whether you're investing in a new opportunity or growing an existing franchise, structured finance can support franchise fees, fit-outs, equipment and working capital.