How to Get a Franchise Business Loan? Taking up a franchise is becoming an increasingly popular way to start a business. Research has shown that successful franchises have a much lower failure rate than other start up options and, in most cases, the business model being purchased has already been tried and tested. However, the initial cost of starting a franchise can be expensive (including the franchise fee, working capital, equipment and fittings, and stock), so one of the key considerations facing those looking to take up a franchise opportunity is how to finance the business, cover these initial costs and begin to trade successfully.
While some will be able to fund the initial purchase from their own resources, many will require financial support. Traditional finance options, such as secured lending from a bank, will often require you to have some start up capital to invest in the business. However, there are alternative finance solutions if this capital isn’t immediately available. In addition, Asset Finance, Working Capital finance and Trade finance can all be used to your advantage to help you through the initial start up phase.
Can you get a business loan for a franchise?
Before approving you for a loan, many banks will expect you to contribute a proportion of the start up capital from your own resources. Typically this will be between 30-50% but will vary depending on the lender and your own circumstances. In addition, lenders will often require some form of security to protect their investment if you cannot meet repayments and default on the loan. While some lenders will accept a second-charge mortgage on your residential property, others may accept a personal guarantee with or without additional security.
How to get a franchise business loan with WORKING CAPITAL FINANCE?
Whether you have used your own money, secured a bank loan or raised unsecured finance to pay the franchise fee and invest in premises, equipment and stock, you will need working capital to ensure your franchise can pay its bills and trade successfully.
How to get a franchise business loan with INVOICE FINANCE?
One option open to you is invoice financing, which can be used when your creditors don’t reimburse you promptly when you send them an invoice. For a percentage of the invoice amount, a financier will provide you with up to 90% of the total of the invoice, subject to certain qualifying criteria, before it has been paid by your creditor. This can free up additional working capital which can then be used to keep the business in operation during the period when you would normally be waiting for the invoice to be paid. The real advantage of this form of working capital finance is that it grows as your business grows.
How to get a franchise business loan with ASSET FINANCE?
If you need to invest in expensive equipment, asset finance may also be a worthwhile option. Operating in a similar way to a hire purchase agreement for consumer goods, asset finance enables you to pay a regular ‘hire’ or ‘rental’ fee for the equipment you require. There are a variety of asset financing options that can be tailored to suit your business.
Before applying for any form of finance you will need to draw up a comprehensive business plan. This is one of the most important documents you will write for your business as the information contained within it can be the deciding factor between whether a lender accepts or rejects your application for finance. Your business plan should provide a clear and realistic overview of the market for your product or service along with details of your business strategy. The key section that lenders will be interested in is the financial plan, which will need to contain thorough financial forecasts for the next three years. It will also be necessary to include information from your franchisor on the business metrics they have worked out for your area.
Banks, financiers and other commercial lenders will use your business plan, particularly the financial forecasts, to reassure themselves that you can meet any required repayments on loans. This is why it is important to make sure the business plan clearly sets out your intentions and provides a realistic overview of what you can expect to achieve in the first few years of trading.
However, when applying for certain types of finance, such as the Small Firms Loan Guarantee scheme, you will need to ensure that the structure of your business plan meets the specific requirements of the scheme. After reading the post about how to get a franchise business loan you’re empowered with the useful knowledge so use it for your own benefit.