Richard Holden - LLoyds Bank 'Your franchise questions answered – Part 4'

In my previous articles in this series I’ve been answering some of the commonly asked questions about investing in a franchise opportunity. This is my final look at some of your key franchising questions. 

How can you spot a legitimate business opportunity from a scam?

Unfortunately, many websites and classified ads promote what amount to business scams alongside genuine business and franchise opportunities. This makes it tricky for the investor to simply identify a true opportunity, with an epidemic of scams looking to take advantage of the aspirations of would-be entrepreneurs. 

It is not always easy to spot a scam, so to minimise the risk of falling prey to these rogue traders it is essential to undertake thorough research before embarking on any new business opportunity. There is truth in the old saying ‘if it seems too good to be true, it probably is’. Below are some of the most frequent, rarely proven, claims which should be treated with caution: 

•Huge profits, no competition, low level investment!
•Work no more than 20 hours per week and earn £50k + per year!
•Run your own business, no experience needed, money back guaranteed!
•Earn great profits, do it all from home with total flexibility!
•No fees, absolute best products available anywhere!
•The ability to earn a substantial income working from home!

These promised returns rarely materialise and investors can get stuck holding worthless stock they are unable to sell. The fact is that there are no shortcuts to wealth – the only people likely to make money in these situations are the fraudsters. 

Aspiring business owners need to apply lots of common sense when researching potential business opportunities. A good place to start your search is with fully proven franchise brands that are based on years of experience and a tried and tested business model.

How can I improve my credit rating?

Your credit history can affect your ability to borrow money from a bank however a poor credit rating can have a far wider impact on your ability to get a store credit, a mobile phone contract or even pay insurance by monthly instalments. 

It is worthwhile checking your credit report to ensure that the information held on your file is accurate. Mistakes can happen which may restrict your chances of obtaining credit so it is important to regularly check the records and definitely do this before making any major application. There isn’t just one credit file and don’t assume that all your files will be identical. Your credit files are held by Experian, Equifax and Callcredit. You have a statutory right to check your files with all three credit reference agencies.

Clearly it is best to avoid doing anything that could adversely impact your credit history. Don’t worry if your credit rating isn’t in the best shape because there are simple steps you can take to improve your chances of securing the financial backing you require. 

First step is to stop applying for credit until you’ve sorted out any problems. Every time you apply for credit it leaves a footprint on your file. You should fix any mistakes on your credit file by complaining to the relevant credit reference agency. They have 28 days to investigate your concerns and either remove the error from the file or explain why they may disagree with you. 

Get on the electoral register if you haven’t already done so and cancel any unused credit cards. If you have defaulted on any credit agreements in the past don’t bury your head in the sand, speak to the lender and come to an arrangement to settle any outstanding debt. 

Moving forward ensure that you make all payments on time by setting up direct debits as this shows that you are a responsible borrower. Often these direct debits just cover the minimum payment so if you want to clear your debt quicker you’ll need to make additional payments but at least you’ll have the peace of mind of knowing you won’t miss a payment.      

Whilst having too much debt is to be avoided if you have never borrowed before this can also work against you. If you have never had a credit card or a loan, lenders cannot review your track record to establish whether you are capable of sticking to a repayment plan.

You may need to build your credit history before applying for any major financial commitment. There are credit builder cards you can apply for which are designed to help demonstrate your repayment history and there is no interest to pay provided you repay the card in full each month. Obviously if you have an unused credit card you can start using that to rebuild your credit record rather than applying for a new card.