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When buying a franchise, raising the money needed to get started can often be the difficult part. The downturn in the economy and a constant stream of news articles about banks' unwillingness to lend may make them seem unapproachable. However, asking a bank for finance to buy a franchise is easier than you may think. It is often seen as a big hurdle in buying a franchise, yet banks have actually continued to finance franchises during the last few years of economic uncertainty.
The reason is simple: a well-thought-out business plan for an already established franchise is a much safer investment for banks than an original business idea and plan created from scratch. Franchise models have already been tried and tested elsewhere and often come with ongoing support and training to get started. This lower risk to the bank is likely to mean there will be finance available to cover part of the costs of buying the franchise.
Typically, franchise arrangements require people to cover one third of the start-up costs through their own savings and to approach banks for the other two thirds through a business loan. But getting finance for a franchise can be tricky and you may only get half the money required to start up the business.
There are, however, many ways in which you can improve your chances of getting the required finance from the banks for your franchise opportunity. Firstly, you will not get far without a carefully considered and detailed business plan. Your franchise company should be able to help you formulate a business plan in order to approach the banks for the required loan. You will need to present cash-flow projections for the first two years and financial details of the franchise company. Other factors the banks will look at are local competition and demand for the service or product as these will affect your ability to make repayments.
Secondly, choose a bank with a specialist franchise department offering free advice. There are many high-street banks that offer these services and you may get a set period of free banking as well. It is essential to speak to someone who has a good understanding of franchises and knowledge about what initial financial help is available. These specialist bank departments will understand the franchise companies and know the level of risk associated with financing each franchise opportunity.
You may find that the particular franchise company you wish to invest in has a relationship with a particular bank that may improve your chances of getting the necessary finance in place.
Whichever bank you choose, they will base their decision on your business plan and you as an individual, looking at your ability to run the franchise and make enough money to repay the bank. They will also take into consideration your credit score. If you are approved, they will inform you of the various financial services they have available and ensure that you choose the ones that suit your business and the market you are in.