How To Finance a Franchise With No Money

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Originally posted on 13/10/2017. Updated on 09/04/2019.

Many budding entrepreneurs dream of setting up their own business but quite often finances get in the way of making this dream a reality. Becoming your own boss is an expensive business venture and understanding exactly how much itll cost can be anyones guess. A benefit of buying a franchise business is that the set-up costs are clear from the start, but for some industries, the fees for owning a franchise can be costly.

The good news is that it is possible to set up a franchise with very little money of your own. There are lots of funding options available for potential franchisees thatll help them make the jump into self-employment. Even those with some of their own money will need to secure additional finance to make the start-up a success. Luckily there are many grants that are available for small businesses which are often underutilised by budding entrepreneurs.

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How can I finance my franchise?

Paperwork and strict regulations can sometimes put new business owners off applying for a grant and therefore many do not complete the application process. There is usually specific eligibility criteria that is often based on location, size and industry of the small business applying for the grant. And even though many applicants get put off at the start, competition for grants can still be tough, particularly for the popular grants that are free from interest and non-returnable.

Tips to Help You Finance Your Franchise

However, despite the paperwork and competition, financing a franchise with little money of your own is certainly possible. Take a look at our top tips below to stay ahead of the game:

  • Check for grants regularly New grants are always being introduced and updated.
  • Act fast Once youve found a suitable grant, apply as soon as possible to beat your competition to the mark.
  • Be conscientious with paperwork- Grant applications can be lengthy and complex, so be careful not to rush through them. Making errors can delay the application process and could even result in your proposal being denied. Ensure to complete the form carefully, providing as much detail as possible and avoid making mistakes.
  • Apply for future projects If you run a project or event before the grant has been approved, it will give the awarding body the impression that money is not crucial for your business. Therefore, ensure that you start the project after securing the grant.

Research Franchise Costs

Before you start looking for grants and loans, you need to have a full understanding of the real cost of running a franchise in the UK. This can include the franchise fee, training fee, rent of the premises, leasing vehicles, stock, shop-fitting, equipment and marketing fee. Once youve got more of an idea of the costs, you can take some time calculating potential profits. And with this information, you can start to craft a business plan.

Create a Franchise Business Plan

An awarding body will be eager to see that the money they provide in a grant will support the success and possibly the expansion of a forward thinking, established business. Therefore, its a good idea to support your application with a robust business plan. The business plan should include an executive summary, personal details, your experience and skills, overview of the franchise, management, business operation, financial projections, capital stake, marketing strategy, details of personal finances and how much money you wish to borrow.

Is it really possible to start up with no money?

Bear in mind that the majority of grants will fund a percentage of the project, not provide the whole amount. Therefore, youll be expected to pay for the rest. If you dont have the necessary funds to match the grant, then unfortunately, the likelihood of your application being approved is low.

However, if you believe that you do obtain the necessary funds on your own, grants that franchisees can apply for fall into three main categories.

What types of grants are there?

Local Business Grants

There are currently 38 Local Enterprise Partnerships (LEPs) across the country which have been set up with the core objective to support and encourage businesses at local level. LEPs forge a unique alliance between the public sector and local businesses, and have a significant and positive impact on society. To date, LEPs have helped to build 93,200 new homes, leveraged over £7.6 billion in private investment, supported over 196,000 businesses, created over 180,600 jobs and supported over 217,900 learners.

Government Business Grants

It is possible to apply for grants through the government if you meet certain criteria. You can apply through the UK Government, Scottish Parliament, or the Welsh and Northern Ireland Assemblies and grants will be approved by each individual provider.

European Business Grants

The European Union is a huge supplier of funds for businesses of all shapes and sizes. Once approved, the grants are typically issued through the European Commission.

What if I cant secure a grant?

Due to the vast scale of small businesses that youll be in competition with for the grants, there is a chance that you wont get the funding youve requested. If this is the case, you may need to consider other ways to finance your franchise such as applying for a bank loan.

As franchise businesses have a proven business model and sound financial history, lenders usually view them as less of a risk. Securing funding through the bank when starting your franchise is likely to be much easier than if you were starting or expanding an independent business.

Which lender shall I choose?

Opt for a lender that has franchise experience. The majority of high street banks have specialist franchise departments as its common practice for them to provide funding to franchises. This means banks can provide helpful insight into your financial projections. There is a range of funding available, so do your research into the one that works best for you and has an interest rate that is best suited to you and your business needs. You could apply for a secured fixed rate or variable start-up loan, or short-term assets finance and leasing.

The amount you can borrow will vary. In the case of well-established franchises, the franchisee will need to provide at least thirty percent of the set-up costs including the working capital. This, ideally, should come from personal savings rather than borrowing. In less established franchise cases, the lender may ask for an even bigger capital agreement before approving.

Normally, you will need to secure the loan with a personal asset, which is often your property. If you dont have appropriate assets but have a sturdy business plan, the Enterprise Finance Guarantee scheme could help.

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