Finance for your franchise

Last month, Auditel became the main sponsor of a new blog and podcast called The Franchise Show. The main aim of this new project is to provide independent advice for people thinking about investing in a franchise as a route to self-employment. As well as updates on general news and developments in franchising, there will be a regular slot focusing on specific aspects of self-employment as well as guests from key organisations within the franchise industry. This month, host Ed Brewer was joined by our own Support Manager, Laura Harvey-Smith to talk about training and support and NatWest Bank’s Franchise Development Manager, Mark Scott, to talk about financing for franchise investment opportunities.

This last subject is often the most crucial in anybody’s decision to become a franchisee. According to the BFA/Natwest Bank franchise survey 2007, the average cost of a UK franchise is £25,000 but, when you factor in all the additional costs associated with some opportunities (equipment, premises, vehicles etc), this rises to £70-80,000. Even with the security of a proven business system behind you, this is a significant investment and a considerable financial commitment, so whatever your personal reasons for wanting to invest in a franchise, you must take an objective commercial view of the proposition as well. (We have put together some comprehensive – but not exhaustive – lists of questions to help you make this assessment in the Starting a Franchise section of this site.)

If you decide that a franchise opportunity does meet your commercial criteria, the good news is that most retail banks in the UK now have specialist franchising teams who will, in the right circumstances, lend funds to finance franchise start-ups. Depending on your circumstances and how well established the franchise is, most will lend between 50% and 70% of the capital investment required. Security is usually required on loans over £25,000 but the DTI small loans guarantee scheme may be able to help if you can’t provide any. As with any loan, banks will carefully consider your personal risk alongside the commercial viability of the franchise opportunity itself so be prepared to submit a business plan and a copy of your CV along with your application form. Auditel have a template business plan designed to help potential franchisees approach the banks for funding.

Mark’s full interview contains lots of useful advice and guidance about how to assess the commercial viability of franchise opportunities and about the process of applying for finance and is well worth listening to, whatever stage of your investigations you are at.

To subscribe to The Franchise Show podcast and to hear Mark’s full interview visit www.thefranchiseshow.net. You’ll also find a useful checklist that Laura has put together to help you investigate the training and support aspects of any franchises you are considering and a link to information about the small loans guarantee scheme.