Owning a franchise is a goal for many aspiring business people and entrepreneurs. By opening a franchise, you get access to an already successful business model, a business plan that you can always refer to, and an enthusiastic client base ready and waiting to support you as you open your doors.
But what puts many potential franchise owners off is the cost of financing a franchise. Typically, there are usually hefty startup fees involved, as well as monthly payments to the franchise. This, on top of rent, employee salaries, and utilities, can be very daunting for a first-time business owner.
But the good news is that even if you have no money of your own to invest in your dream franchise, there are many solutions available to you, and in this article, we’ll explore them!
Zero cost franchises
Believe it or not, there are many franchises out there that don’t have any start-up costs. Instead, if you meet the requirements, the franchise itself will take care of all start-up costs for you. Sounds ideal, right? Well, when looking for zero cost franchises, you need to be well aware of the scams out there and keep in mind that while they don’t have start-up costs, many of them will require large monthly payments when you’re up and running.
However, there are some decent zero cost franchises out there. Just take your time finding them, and remember to read all of the small print before signing off on anything.
In the UK, we are lucky enough to have a government that offers funding for those wanting to start their own businesses (should you meet the criteria). Of course, you’ll need to have all the business paperwork in place before you start the application process, as well as pass a credit check.
The great thing about government-backed funding is that they offer you support and advice along the way. But it is often very difficult to obtain this funding, even if you are eligible. So the best thing you can do is send your application through the government portal and hope for the best.
Borrowing from family and friends
Depending on the financial situations of your family and friends, you could always look at asking them for an investment amount which you could pay back to them over an agreed-upon time frame. You could also make a crowdfunding campaign in which anyone on your social media pages would have the opportunity to either donate or invest.
That being said, it is not always a good idea to mix friendships and business. If you cannot pay your friends and family members back, you could find yourself in a rather sticky situation.
Seeking out individual business investors could be a great way to help you get started with your franchise as soon as possible. Like with government backing, investors will be able to offer sound advice as they usually have in-depth knowledge about running a business.
Keep in mind that the finance won’t simply be handed over to you. In exchange for the investment, the investor will expect to receive a portion of your profits. Therefore, a contract should always be signed between the two parties. You also may have to provide them with regular updates on how things are panning out in the business.
There is a risk involved with this process as the investor could pull out at any time that he deems your business not worthy of their investment.
Obtaining finance for your franchise from a bank is often your best option. Most banks are keen to lend against franchises as they are usually a relatively low-risk business model, and many banks in the UK already have close working relationships with certain franchises. Most banks would prefer to lend to you if you already had some capital to work with, but the fact that you’re interested in financing a franchise and not a brand new business model will definitely work in your favour. If you currently own your home, the bank may show interest in holding your mortgage as a surety. Other assets may be useful in this situation, but be very thoughtful before offering up your home or other assets as surety. This is because there is no guarantee that your franchise will be a financial success.
Choosing the right bank is very important, but you can always speak to a few before settling on which bank you want to obtain a business loan from. It’s helpful to note that most high street banks, including Lloyds and Natwest, have specialised and dedicated franchise departments.
How do I give myself the best chance of getting my finance approved
No matter which of the above routes you decide to take in getting finance for your franchise, the below points will work in your favour when getting the finance approved:
- Have an in-depth knowledge and passion for the franchise that you plan on buying.
- Have evidence of relevant industry experience.
- Have a good credit score.
- Have a detailed business plan.
- You have a home or other assets that you could offer up as surety.
It’s also important that you do extensive research so that you know exactly how much you’ll need to borrow. Borrowing too little could be problematic logistically, but you may find it difficult to pay back your loan every month if you borrow too much. Remember to speak to your franchisor, as they should be able to provide you with an accurate figure for the costs involved in starting up your franchise.
While it is possible to finance a franchise with no money of your own, it is a risk. Ideally, you should have some money of your own to put into the business should you have a slow month or to lower the amount that you’ll need to borrow from lenders. See what you can do in raising capital by saving or even selling unused assets.