Franchising is often a more affordable way of becoming an entrepreneur. Particularly when compared to franchise funding, you may need to establish an independent company. The average setup cost for financing a franchise in the UK is around £40,000. Considering this, you'll need a fair amount of money to invest. When factors like working capital come into the equation, the cash you'll need to find can spiral into six figures.
If you're looking to become a franchisee but don't have that kind of cash, don't despair. Around 50,000 franchisees are operating across the UK, with many under 30s, stay-at-home parents and low-paid employees leaping yearly despite lacking funds. Many loan and grant options are available to entrepreneurs across the UK. However, financing a franchise on a shoestring has always been challenging.
Here are some of the best funding options, from loans to grants, that might help you realise your dreams of becoming a franchisee.
Aspiring franchisees burning questions
Starting a franchising journey could be an exciting yet daunting endeavour for some, particularly if financial constraints are looming large on the horizon.
The burning questions such as "how to finance a franchise with no money?" or "how much can I borrow for a franchise?" are common among aspiring franchisees. The guide aims to enlighten franchisees about various avenues of franchise funding. We will explore traditional and alternative options. Let's equip you with the knowledge to transform your franchise dream into reality.
Create a franchise business plan
If you apply for a grant, an awarding body will be eager to see that their money will support the success and expansion of a forward-thinking, established business.
Thus, a good idea is to keep your application with a robust business plan. The business plan should include an executive summary, personal details, experience and skills, franchise overview, management, business operation, financial projections, capital stake, marketing strategy, details of personal finances and how much money you wish to borrow.
Franchise funding options
Traditional Franchise Finance
Typically, entrepreneurs explore conventional ways of financing a franchise, such as franchise loans and bank loans. These traditional franchise finance sources are usually most people's first port of call. They often have lower interest rates and extended repayment periods but need good credit history and collateral.
Alternative Franchise Financing
With the evolution of the financial landscape, several alternatives to traditional financing and funding options have emerged. These include crowdfunding and grants.
1. Crowdfunding: A popular alternative funding avenue. Crowdfunding enables aspiring franchisees to raise money from a pool of individuals willing to invest small amounts in exchange for a return on their investment. Websites like Kickstarter and GoFundMe have become hotspots for such fundraising activities.
2. Grants: An often overlooked source of franchise funding. Grants offer a means of acquiring capital without incurring debt. These are non-repayable funds provided by governmental bodies or organisations promoting entrepreneurship.
A range of private and government options are out there which can cover a large per cent of the initial franchise investment fee. Before we look at a few of the best, there are a few things to note when applying for an elusive business grant.
- Check for grants regularly. New grants are being introduced and updated.
- Act fast. Once you've found a suitable grant, apply as soon as possible to beat your competition to the mark.
- Create a business plan. Support your application with a robust business plan. Include details such as an executive summary, personal information, experience and skills, franchise overview, financial projections, marketing strategy, details of personal finances and how much money you need to get off the ground.
- Be conscientious with paperwork. While you shouldn't delay your entry, grant applications can be lengthy and complex. So be careful not to rush through them. Making errors can delay the application process and result in a denied proposal. Ensure you complete the form thoroughly, providing as much detail as possible and avoid making mistakes.
- Apply for future projects. Running a project or event before an approved grant will give the awarding body the impression that money is not crucial for your business. It is an excellent idea if you've secured the initial franchise fee as a loan but are looking for future financing options to help improve cash flow and working capital.
What types of grants are there?
Local business grants
There are currently 38 Local Enterprise Partnerships (LEPs) across the country. Setup with the core goal to support and encourage businesses at the local level. LEPs forge a unique alliance between the public sector and local businesses while significantly and positively impacting 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 217,900 learners.
Government business grants
Applying for grants through the government is possible if you meet specific criteria. You can use it through the UK Government, Scottish Parliament, or the Welsh and Northern Ireland Assemblies. Yes, each of these providers can approve grants. Check out gov.uk for more information on the grants and loans available in your local area.
European business grants
The European Union is a massive supplier of funds for businesses of all shapes and sizes. Once approved, the grants are typically issued through the European Commission.
If you're looking for other grant providers, check out the bfa for information on trustworthy funding sources. These include the Prince's Trust, Virgin StartUp and Start-Up Loans.
Securing franchise loans is one of the most common ways to finance your franchise. Various lenders, including banks and specialist franchise lenders, offer tailored loans for franchisees. They consider the franchise fee, initial setup costs, and ongoing capital requirements.
Financing a Franchise with No Money
The question of "how to finance a franchise with no money?" might seem counterintuitive, but several options exist for those lacking upfront capital. These include 0% interest credit cards, borrowing from retirement funds, or utilising personal savings. But, these methods have risks, and you should approach them cautiously.
How Much Can I Borrow for a Franchise?
How much you can borrow for a franchise depends on several factors. These include the franchise model, credit history, and financial situation. Lenders can finance up to 70% of the total start-up costs, with the franchisee expected to provide the remaining 30% from personal resources.
Now You Know How to Finance Your Franchise!
It is vital to understand franchise finance and explore all the available options. Before deciding, assessing each option's benefits and risks is crucial. You should consider your circumstances and franchise objectives.
We have provided insights into "how to finance a franchise with no money" and "how much can I borrow for a franchise". Suppose you seek more advice or information on specific funding options. In that case, we recommend consulting a franchise specialist to ensure you make the best financial decision.
You can also check out our range of low-cost franchises
Shaun M Jooste, Point Franchise ©