Funding your franchise – what to consider

Colin Chadwick, Director Franchise Development, NatWest

Generally, business success in the franchise sector is higher than the start-up market as a whole. And with proven business models and central support networks, it’s easy to see why. 

Raising finance for a franchise can be straight forward provided you have a sound credit history and a robust business plan.

Like with anything, working with a bank that understands your sector can make a real difference.

When you approach your bank for lending, you should make sure you have a thorough business plan.

The best ones should include:

• Details about the franchise 
• The sector it operates in 
• The competition, both locally, regionally and nationally 
• Your marketing plan 
• The costs 
• Projected financial information
• Your CV and details of any key staff 
• Your assets and liabilities.

One of the most important sections of the business plan will be about you - the franchisee.  This is because the success of the franchise will be determined, in most cases, by the franchisee and the effort they put in to the business.  So make sure you are ready to make the commitment before making any decisions.

If you are buying an existing franchise, information about the financial performance will also be required – ideally for the last three years.

For established successful franchises, you are likely to be able to raise a greater level of finance for your start-up costs and working capital requirements. Many banks will lend up to 70% of required finance for established franchises, and around 50-60% for new models.  Again this compares well against raising finance for an independent start-up business, which does not have a brand and proven operating model behind it.

When approaching a bank for funding, the cost of the franchise is clearly a consideration. For franchises where the start-up costs are higher, the franchise owner contribution will also be higher as you will need to contribute a minimum of 30 per cent of the total finance required.

Additionally, when a higher funding requirement applies on a viable business proposition, the bank will require a charge over assets as security, which may not be required for funding under £25,000.

So there are lots of aspects to consider before taking the plunge.  

Starting out in business, even as part of an established franchise, is a big decision and requires thorough research and commitment.

NatWest is committed to continuing its support for the franchise sector and has the longest established dedicated franchise department of any bank - helping thousands of entrepreneurs set up successfully each year.

Colin Chadwick QFP is the Director of Franchise Development for at NatWest, part of the Royal Bank of Scotland . With over 30 years of experience in banking he is a Qualified Franchise Professional and a regular speaker at franchise exhibitions and seminars.