Franchise Funding & How To Get It
I wrote a blog in 2019 about the five barriers to business growth, obviously having no idea how the Covid-19 pandemic would start to dominate our business lives. When I recently joined Lime Licensing Group, I reflected on that blog, my expertise helping people with strategy and funding, and as an advisor on The Government backed Startup Loan Scheme. My thinking led me to the issue of franchise funding. Both for new franchisors and for people investigating becoming a franchisee.
I have worked in strategy, marketing, advisory and commercial roles with businesses pursuing business growth models ranging from using agents, distributors, franchising and licensing, as well as businesses that follow a direct to customer business expansion model. Regardless of the business model, for most SME’s access to finance remains the number one barrier to growth, followed by nurturing the right type of customers, harnessing accurate information and good technology tools, and getting good expert advice.
Whilst many parts of the small business community are sadly currently in limbo, or worse, the performance of franchising businesses during previous recessions indicates a positive outlook for the sector. One reason for this is that, for a franchisor, growth to a large degree can be achieved with less need for finance and more control than with other growth models. For the franchisee growth can be achieved based on the franchisor’s tried and tested business blueprint; taking away some of those barriers to growth.
Franchise Funding & Finance
One barrier that remains for the franchisee however is access to finance.
Financing a franchise can be expensive and most franchisees need to secure capital to get their business up and running. Despite options including some franchisors tailoring financing solutions exclusively designed for their franchisees, high street and challenger bank loans, overdrafts, The Enterprise Finance Guarantee Scheme, crowd funding, peer to peer options, friends and family lending, securing the finance is often not easy. All those attractive headlines and attractive headline interest rates do not get your franchise financed.
I am a fan of the of the Government backed Startup Loan Scheme; not just because I have helped over a hundred businesses get funding, but because for the right people, franchises being very much included, it is a great option to investigate.
Having our own in-house expertise, working closely with our franchisor clients and with two of the Government’s largest Delivery Partners on the scheme is an added benefit that can help get the finance over the line.
Startup loans
The Startup Loan is a way for people with a business idea, who are buying a business, or who have a business that has been trading for under two years, to borrow between £500 and £25,000 up to a limit of £100,000 between four people within the business.
Data from many sources say that on a like for like basis franchises are probably more likely to survive than other types of business; based on the statistics the added profitability, survival and viability of a typical franchise business model means a Startup Loan could be seen as a good lending risk for the Startup Loan; and it is lending risk along with affordability of the repayments by the borrower and viability of the business that inform a lending decision.
The Startup Loan scheme is a government supported scheme run the The British Business Bank initiative that provides loans to businesses of all types across the UK Normally the loan is over five years and it is an unsecured personal loan at 6% interest rate that you can inject into a business. The loan can be paid back early without incurring additional charges or paying the interest due on the time left on the loan. The process is relatively quick and simple.
Different from most bank derived lending, a Startup Loan offers up to 100% of the investment amount of buying a franchise, and applicants can apply for capital repayment holidays. It is a great way to fund a viable business but as with other forms of lending there are hurdles to clear and hoops to jump through. For example you will need a good credit rating, and to submit a business plan, a cash flow, and financials; but if you are a franchise buyer you are using the franchisor’s tried and tested business model and have the support of the franchisor. As an expert on the scheme we have built templates to help with those hurdles and also offer on going advice, working with the franchisor and their potential franchisees.
That’s a good start as far as this scheme is concerned.
Ultimately franchise funding, for both franchisor and franchisees, is about getting good advice from advisors with the combination of experience and knowledge to help. And ultimately the biggest barrier to business growth is getting good, experienced advice. My view is that as we at last seem to be seeing some dim light at the end of the Covid-19 tunnel, the Startup Loan Scheme can be a great benefit for the franchisor and the franchisee. For both, finance is one of the biggest barriers to growth, and the Startup Loan Scheme is potentially a very good fit.
There is a book that everyone seems to be reading at the moment ‘The Boy, The Mole, The Fox and The Horse’. In it The Horse says ‘the truth is, everyone is winging it’. True, but there has to be something said for winging it backed by access to good finance, support and advice, helping you overcome those five barriers to growth.
Maybe, just maybe, looking at a Startup Loan might help.
Patrick Burge is a specialist in business growth. He has helped build online and offline businesses in many sectors including tech startups, apparel, sport, fitness, health, printing, retail, coaching and consulting. Apart from specialising in brand licensing and franchising, he has also advised numerous businesses on getting their strategy and funding in place. He is an advisor and Delivery Partner CEO on The Government Startup Loan Scheme.
He can be contacted at patrick@smorgasbord.tech or patrick@limelicensinggroup.co.uk
Further reading:
Why startup franchises are not really startups
Personal Loan – Now this is an interesting one because banks have many pots to lend from. At lower investment levels we still see a lot of franchises funded by personal loans. This is a quick and easy loan to get. It is a fact that we see a lot of franchisees obtain consumer loans and use it for a business. No business plan required. No cash flow needed. Usually you get an agreement in principle within a day or two! As a result personal loans are very popular ways to get funding for franchises.