08 May How to Get Funding For Your New Franchise
You’ve finally decided that starting up a franchise seems like a smart move. You’ve done your research and found out a franchise opportunity that you want to leverage. The future looks bright and you can’t wait to be your own boss and even have your own employees. But now there is just one problem – Getting funding to start up your franchise?
Funding a franchise is probably the biggest headache for most entrepreneurs. You can decide to use your own money, but that may only take you so far. If you have a bad credit score, getting a loan from a bank is out of the question.
Starting a franchise requires serious investment. You will need to invest a good amount of money in your chosen franchise. The problem is that most people don’t have the entire amount they need upfront. Even with a great-looking credit score, banks may lend you a maximum of 70% of your start-up costs and this is mostly for an established franchise. If you are new to franchise business, the best you can get from the bank will be around 50%; that is if you have maintained spotless credit record.
This means that you need other sources to get enough loans to invest in your startup. Below, we will discuss different places you can source for funding for your new franchise. But before we do that, let’s take a look at what you need to get a loan:
- Business Plan
No one will offer you a tangible loan without a business plan. You need a well-rounded business plan to be able to secure funding from a bank or any other lending institution.
- Good Credit History
Banks and franchisees don’t need anyone that will default or abscond with their loan. They are probably going to look at your credit history before offering you a loan. If you have a bad credit, you will need to consult with an expert to help you explore alternative options.
- Good Standing Documents
Now you have a business plan and good credit history, get your documents in order. You will need certain documents to verify your ownership of business, record with police, and other things like that.
Where to Get Funding For Your New Franchise
Below, we will explore different options for sourcing for fund for your franchise
- Personal Savings and Loans from Family and Friends
The great thing about starting with your own savings is that there will be less pressure on you. If your savings is not enough, ask for help from wealthy friends, distant aunts, uncle, and other members of your family, they might be able to give you the fund you need to get started.
- Franchise Bank Loans
In most cases, a bank is the most preferred options for sourcing funds for a franchise. Currently, the leading banks when it comes to franchising include NatWest/RBS, Lloyds TSB, and HSBC – All of the above-mentioned banks maintain a department for a franchise business. You will get between 50% to 70% of the money you need and you can complete the remaining amount with your savings or loans from other sources.
- The Start-Up Loans Scheme
This UK government-run initiative will provide you with up to £25,000 loan for your new start-up. You can secure this loan at around 6% APR over a period of up to five years. What made this initiative special is that it can offer you up to 100% of the investment amount and you have an option to apply for capital repayment holidays. Note that you will need a good business plan and strong trading record to access the maximum loan this scheme can offer.
You can learn more about this loan source from their website.
- Local Community Development Finance Initiatives (CDFI’s)
If you don’t have a good credit history to help you obtain a loan from a bank, you may try this option. Check out for small business finance initiative running in your region. You can access a loan of between £50-100,000 from this source. The only downside is that the interest rate is slightly higher than other sources. In most cases, the interest rate is about 10-15%. A perfect example of this type of initiative is the Manchester Business Loans Scheme. Check to see if you have such loan scheme in your region.
- Insurance Companies and Building Societies
You can source for funds from insurance companies and building societies. These organizations are less restrictive in terms of their requirements; they don’t take deposits or provide normal banking facilities such as overdrafts. However, they can be able to offer you the loan you need to get started at higher interest rate.
Starting up a franchise is indeed a smart move. The beginning always seems tough, but you will enjoy the benefits once your startup starts doing well. Ensure you consider each of the above-mentioned sources when looking for fund to invest in your business. You can as well research for other loan sources available for startups in UK.