How to Finance a Franchise Business – Sources of Funding

Buying a franchise gives you an instant source of steady customers. You do not have to spend all that effort advertising your new business to find them because your franchisor should already have done the promotion work on your behalf. All that you usually need to do is deliver the services your franchise offers to the highest possible standard.

But buying a franchise costs money. What if you do not have a lot of cash lying around?

If you are wondering how to finance your franchise, here is everything you need to know about where you can source that money:

How to Finance a Franchise Business – Sources

There are several ways you can go about financing a franchise start-up. Some of the best franchise funding sources include:

1) Bank or Lender Financing

If you have ever tried to get a business loan in the UK before, you will know that it can be a challenging process.

But asking a bank to lend you money for your unknown start-up is one thing. Franchise loans – borrowing the money you need to buy your franchise from a big reliable company – are something else.

Banks want clients who offer low risks. With a big-name franchisor at your side, that is exactly what you will be. You can learn everything you need to know about how to get a business loan in the UK in our full article on the subject.

2) Borrowing from Friends and Family

Many people get finance for a franchise purchase from friends and family members.

• This can be a good option compared with banks, as your friends or family may offer you better conditions on the loan.
• Also, if someone close to you has offered you the money, they will not ask for the same proof and documents that a bank will.
• The downside of this arrangement is that you complicate your personal relationship with a business one. Borrowed money has been the end of too many friendships to count.

All of this make getting funding from friends and family a potentially easy but risky option.

3) Home Equity Funding

If you own a house or other property, and if you have enough equity in it, you may be able to use it to fund your new business venture.

Home equity loans are less popular than they were before the 2008 recession. Yet, they still exist and can be an excellent way to turn your property into potential business capital.

4) Retirement Funding

If you have retirement savings from previous jobs, they represent another possible source of finance for your new franchise start-up.

Of course, there is a downside. If you invest some or all of your retirement funds, you may not have sufficient savings when you actually retire. It is advisable that you talk to an accountant or another finance professional before you proceed with this investment option.

5) Local Grants and Other Funding

Some parts of the UK and some central government departments may offer small business grants to encourage entrepreneurship in some areas.

These are not common. But they may increase as the UK government tries to encourage business growth while the COVID-19 crisis continues and once it is – eventually – over.

These schemes may have very specific requirements. But they can be worth looking into, possibly combined with other commercial finance options for your franchise mentioned here.

6) Crowdfunding Franchise Loans

Crowdfunding a franchise loan is one of the most modern ways to get the finance you need to open your new business. But it comes with one significant downside.

With most crowdfunding platforms, you are essentially selling part ownership of your business.

You might not need to make regular repayments to a bank if you are crowdfunding. But most new franchisees are going into business for themselves to be their own boss. That loss of ownership is a price that few are willing to pay.

7) Franchisor Funding Options

Some franchisors offer financing of their own. Others, as Fantastic Services, for example – have a great deal of experience working with reliable finance providers. They will be able to talk you through how to finance your franchise.

Some franchisors also offer rebates or incentives if you reach certain goals when your business is up and running successfully.

How to Finance a Franchise – Tips

When you plan how to finance your franchise, it is crucial to bear in mind a few vital aspects no matter which source of funding you decide on. Make sure:

1. You have considered all your options.
2. You know how much you will pay in total by the end of your agreement.
3. You account for how much money you need to cover the day-to-day, running of your business too.
4. You think about borrowing a little extra for “rainy day” money.
5. You read the agreement terms in detail.

Your new franchise could transform your life. You could soon be your own boss of a business which – if it is anything like the franchise opportunities Fantastic Services offers – is designed to grow from day one.

But when it comes to financing your franchise, make sure you think carefully. This way, you will know where you stand at all times.

Need to know more about how to finance a franchise?

Fantastic Services helps all of our franchisees set up their finances in the best way for them.

Get in touch with us for a commitment-free chat today.

• Last update: March 1, 2022

Posted in Industry Insights