Trying to Finance a Franchise Without Money? Here Are Some Funding Options to Consider

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Franchising is often a more affordable way of becoming your own boss when compared to the funds you may need to establish an independent company. However, the average set-up cost for financing a franchise in the UK is now around £40,000 (smallbusiness.co.uk), meaning that you’ll still 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 easily 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 currently operating across the UK, with many under 30s, stay at home parents and low-paid employees making the leap every year despite their lack of funds. There are also lots of loan and grant options available to entrepreneurs across the UK, meaning financing a franchise on a shoestring has never been easier.

Here are some of the best funding options to look at, from loans to grants, that just might help you realise your dreams of becoming a franchisee.

Things to consider before applying

Before you apply for funding, it’s smart to have worked out a solid business plan to understand just how much you need to borrow to get your franchise off the ground. This will need to include the cost of any equipment, commercial rent, marketing costs and working capital to help ensure you’re solvent until your business starts to generate a good income.

A good franchisor will work with you to help you get an accurate picture of how much your franchise is going to cost. It’s also important to consider how much you can realistically afford to invest in the franchise to supplement any business loan, as it’s unlikely 100 percent of the cost will be financed by a bank or franchisor.

Create a franchise business plan

If you choose to apply for a grant, an awarding body will be eager to see that the money they provide will support the success and possibly the expansion of a forward thinking, established business. Therefore, it’s 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.

Franchise funding options

Most franchises will offer some kind of funding programme, with many lending up to 70 percent of the initial investment fee to applicants who meet their franchise criteria. This is a business loan and will need to be repaid over the course of your franchising journey but helps you to bridge the gap between employment and franchising by covering the upfront costs.

Enquire with your chosen franchise about any existing finance links it has already established. The franchise may have already built a relationship with a bank, meaning you can access preferential rates and terms on your lending agreement. If not, franchises are often viewed more favourably by banks when it comes to approving a business loan, so it’s likely that you’ll be able to secure funding from a leading bank relatively easily.

Becoming a franchisee of a newer business can make it a bit trickier to secure funding, as it will not have such a strong history of success and may therefore be viewed as a higher risk. In these cases, your franchisor should work with you to build a strong business plan that you can present to potential lenders demonstrating why they should invest in your and your franchised business.

Which bank should I choose?

While most banks around the world offer business loan products, it’s best to approach a lender that has franchise experience first. Most high street banks, including Lloyds Bank, NatWest and HSBC, have specialist franchise departments, as it’s common for them to provide funding to franchises. This means they can provide helpful insight into your financial projections and offer tailored products that consider the unique challenges and requirements of becoming a franchisee.

There are a range of funding options available, so do your research into the one that works best for you and has an interest rate that is ideally suited for your business’ needs. You could apply for a secured fixed rate or variable start-up loan, or short-term assets finance and leasing. Your franchisor, chosen bank or an accountant can help you decide which option is best for you, considering your current financial situation, projected earnings and how quickly you’re looking to pay off your loan.

How much can I borrow?

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 property or a belonging that could cover the amount if you default on any payments. If you don’t have appropriate assets but have a sturdy business plan, the Enterprise Finance Guarantee scheme could help. You may also be able to secure the loan via a guarantor, which could be a close family member or partner.

Grants to fund your franchise

There are also several grants available to businesspeople across the UK who are looking to become their own boss. Many of these don’t need to be paid back or will afford the borrower much better repayment terms than traditional business loans. There are a range of private and government options out there right now, which can cover a large percent of the initial franchise investment fee. Before we look at a few of the best, there are a few things to note when you’re applying for an elusive business grant.

  • Check for grants regularly. New grants are always 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, including details such as an executive summary, personal details, your experience and skills, overview of the franchise, 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 with 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 could even result in your proposal being denied. Ensure you 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. This is a great 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 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 (LEPnetwork.net).

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

BFA-approved grants

If you’re looking for other grant providers, make sure you check out the bfa for information on trustworthy sources of funding, including the Prince’s Trust, Virgin StartUp and Start Up Loans.

Is it really possible to start up with no money?

Bear in mind that most grants will fund a percentage of the project, not provide the whole amount. It’s likely you’ll be expected to fund some of the cost, but even if not, you’ll need some funds to live off while your business establishes itself and becomes profitable. This is likely to take a few months but can take as long as a year or more. Unless you’ve got a partner or family member that can support you, starting a franchise without any money is tricky at best.

Franchises can be surprisingly affordable, though – check out our range of low-cost franchises, starting from just £495.

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