Starting your own franchise business or joining an established brand is an excellent way to set yourself up for life. But which of the many franchise financing options are best suited to you, and what do you need to apply for franchise funding today?
Here at Business Financing, our goal is to help you compare a range of financing options with ease. So whether it’s your first time in the business world or you are just looking to join a franchise, you can find all the answers you need below!
Types of Franchise Financing Options
Establishing a franchise or joining a renowned chain can be a costly venture. Thankfully, in the UK, there are multiple financing options you can use to help set your business up. Below you can find some of the most popular financing options to finance franchises in the UK.
Franchise loans
As with most financing options out there, you may be able to apply for a franchise loan from high street banks or an established lender. These work exactly as you would expect with any kind of business loan, a set amount of cash dedicated to helping you establish a franchise brand or expand your working capital.
If you are a business owner looking to set up your own franchise business, then a loan may be what you need to make that initial investment.
Pros
- Can be a quick way to gain an initial investment in your franchise
- Thousands of lenders across the UK to choose from
- A tried and tested financing method
Cons
- The interest rates can be quite high
- You might struggle to apply for a loan if you have a poor credit score
- Repayment term lengths are usually shorter than other options
Franchisor financing
Perhaps the most common form of franchise finance out there is franchisor financing. A majority of franchise businesses will want more people using their franchise, so they will offer a selection of financing options – the most common option tends to be in the form of a franchise loan.
On top of this, by opting for finance from the franchisor themselves, they may be able to offer you insight and assistance in successfully setting up. This option is worth investigating if you want to sign a franchise agreement.
Pros
- Franchisor financing often comes with support and advice from franchise experts
- It will help you pay for your initial franchise fee
- Franchisor financing can help you skip the initial business setup
Cons
- Can drastically lower your initial cash flow as you may need to pay interest
- Not suitable for anyone looking to set up their own franchise business
- There can be some strict contractual agreements
Crowdfunding
A fairly new method of financing is what is known as crowdfunding. This is where you share your idea and business model with investors or even the general public and ask for funding to bring your vision to life.
This can be an excellent way to start a franchising journey, but it can be difficult. Although you won’t need to pay anything back, you will need to win the support of potential investors and offer them a service they are happy to invest in.
Pros
- You will not need to pay anything back when crowdfunding
- There is no cap on the amount of support you can earn
- Your credit score will have no impact on the amount you can earn
Cons
- Requires you to earn the support of investors with a solid and interesting plan
- You may not be able to get as much as you would with a loan
- Can set high expectations for your franchise
Enterprise finance guarantee (EFG) scheme
The EFG scheme is designed to offer business owners without a proven track record a way to access a loan. If the lender is confident that you will make the repayments associated with an EFG scheme, you may have access to franchise finance.
As the government acts as a guarantor, the EFG scheme can be an excellent way for a business to take out a loan in situations when you may not otherwise have access to a loan!
Pros
- An EFG does not rely on your credit score
- Extremely flexible repayment terms
- The government guarantees 75% of the loan
Cons
- The EFG scheme does require a personal guarantee
- The application process can be quite lengthy
- You will still need to pay 100% of the loan back over time
These are just a few options available to business owners in the UK. Be sure to compare deals across a range of lenders and consider your personal finance history to find out which is the best choice for your businesses needs.
What Can I Use Franchise Financing for?
As the whole purpose of franchise finance is to help you set up your franchise business, it is mainly used with payments associated with this. One of the most common uses of franchise finance is to pay the franchise fee that most large franchises require to join their chain.
Generally, as long as the money you have earned is being used to improve or establish your franchise business plan, you are using it correctly!
Do I Qualify for Franchise Financing?
If you are interested in financing a franchise, your lender may have a few requirements that you must meet. You may also need to meet additional requirements depending on the type of loan you are applying for.
Generally, there are two main forms of business loans available for franchise finance. These are secured and unsecured loans.
Before you apply for franchise finance, you will need to verify that you qualify for your chosen financing option. This information can be found on the lender’s website, so be sure you read carefully and take any steps needed to expedite the application process.
What You Will Need to Apply for Franchise Financing
When applying for franchise finance, you will need to ensure you have the relevant business documents at hand. Working capital, cash flow and your annual turnover are extremely useful documents to have and may be requested by lenders.
Depending on your franchise finance option, you may also need a solid business plan – this is especially true with crowdfunding.
Before you apply, make sure to double-check what documents are needed. The more you are prepared, the faster the application process will be.
How to Apply for Franchise Financing
The application method will largely depend on your chosen franchise finance option. A typical application process will either require an online or in-person meeting, and you may need to bring along a copy of any necessary documents.
Leading banks will also generally provide a way to apply online. If you are confused about a specific application process, get in touch with your chosen lender. They will be more than happy to help guide you through the process.
Who Offers Franchise Financing?
Most banks and lenders in the UK that offer business loans will generally have some form of franchise finance option. Be sure to check out franchise funding offers from multiple lenders and banks before you settle – this way, you can find the best deal!
Which Franchise Financing Option Is Right for You?
Deciding which franchise finance option is the best to cover your franchise costs can be a challenge. With so many options out there, each with its collection of positives and negatives, it can quickly get overwhelming.
As there is no single best option out there, then you should always take the time to compare deals and decide on which is best suited to your needs and history.
If you are struggling to apply for a typical business loan, then crowdfunding or the EFG scheme can be excellent options.
Final Thoughts
A great way to promote your chain and set your brand up is to franchise your business. As with all business models, you will need the necessary funds to franchise your business – regardless of whether you are creating your own or joining a chain.
We hope that this guide has helped you discover the vast range of franchising finance options available in the UK. Take your time to compare any loans and ensure that you make the best decision for your business!
FAQs
Can I get financing if I have a bad credit rating?
You can get financing even if you have a bad credit rating, but it will be a lot tougher. You may also be limited to specific financing options, so be sure to check out which finance choices are available to people with a bad credit history.
Do I have to pay back a government grant?
No! Government grants are awarded to businesses without the need for the awardee to pay back any of the grants they earn!
How soon can I receive a bank loan?
The time it takes to receive a bank loan will depend entirely on the lender and how long it takes for the loan to process. Typically, you can expect a loan to hit your account in a few days, but in some instances, it can take a couple of weeks.