Franchise Finance

Sources of Franchise Finance

For anyone considering taking on a franchise, working out how to finance the venture is often the most critical decision that has to be made.

Franchise Finance from Banks

The major high street banks are a good place to start. They have head office departments that specialise in franchise finance, allowing your local bank business advisor to find out useful information for you about potential franchise partners that might not be publicly available, as well as helping to arrange the necessary finance that would enable you to become a franchisee.

Financial institutions have come to regard reputable, well organised franchises as sound business propositions. Consequently, they will often be willing to lend proportionally larger sums of money, on more competitive terms, than they would for a plain new business start-up.

However, before you make a formal approach to a bank, you should calculate how much you can afford to put into a franchise, either from savings or by attracting investment from family members or friends. When making your calculations, you can assume that a high street bank would probably be willing to lend up to 70 percent towards the purchase of an existing franchise or up to 50 percent towards a new franchise.

Franchise Business Plan

Before agreeing to any loan request, the bank will expect you to produce a detailed business plan, which includes cash flow forecasts. Your potential franchisor should be able to advise you about the potential turnover that your new franchise might generate. However, it is probably wise to assume that the franchisor’s figures will be towards the optimistic end of the spectrum.

Do your own research and make you own decisions about what goes into your business plan. In particular, be realistic in calculating how much income you need to live on when working out the potential viability of the franchise.

Summary

 The major banks are generally willing to finance reputable franchised operations;

 high street banks’ head office franchise finance departments are potentially useful sources of information about franchisors;

 preparation of a comprehensive business plan is a pre-requisite to obtaining bank funding for a franchise operation.