Financing Your Franchise

FranchiseBusiness.co.uk:

Financing the purchase of your franchise can be a difficult and bewildering process.

In an ideal world the cost of your franchise will be financed from savings. However in most situations this cash may not be available. It is also worth bearing in mind that if you do have these resources, they may be required to help you through the start-up period.

The Banks
The main source of finance for franchising is the major clearing banks, most of whom have specialist franchise departments. The banks will expect you to put in a substantial contribution yourself, this is normally between 30-50% of the total cost.

There are different types of finance that can be offered and often a package will consist of a number of different elements:

* A loan to cover your start up costs
* Leasing arrangements to cover equipment and vehicles
* Overdraft facilities to assist with cashflow

Sometimes you can negotiate a capital repayment holiday to assist in the early days but remember that interest is still being added all the time.

The banks will normally require security to cover the loan and will be subject to normal status requirements. Quite rightly the major factor for any lender is your ability to repay the loan. The term of the loan will not normally be longer than the term of your franchise contract.

Most Franchisors will have already dealt with these banks and may have made special arrangements and this is always worth checking as they have negotiated special terms based on experience. More.