Posted on: 30 January 2015
Franchising your business is not necessarily the cheap option for growth. Setting up a franchise involves time, effort and financial investment to make sure that the model, systems and processes can be successfully replicated by others.
Richard Holden from the Lloyds Banking Group explains that whilst the banks that support franchises tend to focus on lending to franchisees, they acknowledge the fact that successful franchises are proven business models and so can offer better lending rates than they might other types of business.
Nicky Lees is a franchise coach at Pera Consulting, which is part of the Government’s GrowthAccelerator programme that supports high-growth businesses in achieving their full potential. “Businesses that are eligible for GrowthAccelerator can get matched funding for leadership and management development on top of tailored support from a business coach,” says Nicky. “This can include helping attract more
people to buy into a franchise as well as providing support to recruit the right calibre of franchisee.”
Franchisors pay an initial GrowthAccelerator fee depending on the size of their business and then can receive up to £2,000 matched funding per senior business member.
The other options for funding your franchise are the same as with any business start-up and include:
Cash – whether it be from redundancy, inheritance or the sale of a previous business
Bank overdraft – some banks offer decent overdraft limits but the interest rates and charges can be high
Leasing – choosing to lease some of the equipment you need for your franchise business can reduce the initial cash outlay, however the overall cost will be higher than if you bought the items outright
Asset-based loan – if you own valuable property or equipment, you can borrow money against them, but again this can be an expensive option
Factoring and invoice discounting – giving you an immediate cash advance on invoices as soon as they are raised, minus any charges
Crowdfunding - by posting your idea on a crowdfunding platform several people may come together to invest in your franchise
“As a franchisor looks to expand,” says Richard Holden, Lloyds Banking Group, “banks may be happy to support the business’s growth. The lower commercial failure rate for franchises means it should survive longer, lowering the risk to a potential lender.”
Use the content guide below to answer your franchising questions:
- What are the advantages and disadvantages of franchising?
- Does my business suit the business model?
- What do I need to consider when setting up the franchise?
- What are my options for funding a franchise? (You are here)
- How do I recruit the right franchisees?
- What are the advantages and disadvantages for the franchisee?
- Will I suit the franchise model?
- Where do I find franchise opportunities?
- How do I choose the right franchise business?
- What questions should I ask before buying?
- How can I finance becoming a franchisee?
- How do I make my franchise successful?
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