Raising finance for buying a franchise
You have done your homework and have finally decided on the franchise for you, now all you have to do is raise the finance for the investment!
How much money can I invest?
When looking to buy a franchise you need to make sure that you can afford it. There is no point in finding your dream franchise to only realise it is well out of your budget.
Find out what you can afford before starting your research. And when speaking to franchisors or requesting information from them, make sure they give you a full breakdown of their costs as well as the average cost of opening a franchise.
Also ask how much working capital is required as this is very important as some people think they can afford a franchise but have not budgeted for any working capital.
You need to look at your savings and whether you can borrow money from family or friends; though if borrowing from family or friends make sure that you get an agreement drawn up on how the money is to be repaid.
Also look at all your outgoings, what your monthly outgoings are. If buying a franchise you may not make any money for the first 6 months or more, can you afford this drop in income? How will you support your family?
Visiting a franchise bank
The major banks in Ireland all have specialist franchise departments and are knowledgeable on all ethical franchise systems. Banks like franchising as they have identified the tried and tested business format of franchising as being a safer way to start your own business. Contacting them for advice on buying a franchise should be a vital part of your research.
Make sure that you have a good business plan before approaching the bank for finance. This should help to sell you and your business to them as a good investment.
In order to determine if the will lend money to you, the bank will look at:
Who they are lending to – You will need to prove to the bank that you are not a risk. They will carry out credit checks on you as well reviewing your suitability to running your own franchise business. You will need to show them that you have security, e.g. life policy, equity in your home, to back up your loan request.
The franchise company - The track record of the franchisor is important when it comes to lending. The more established a franchisor the more the bank will lend. If a bank is not willing to lend on a particular franchise then it usually says a lot about the franchise!
The amount – In franchising banks usually expect the franchisee to contribute, from their own money, at least 30% of total cost of the franchise. They will discuss the options available to you e.g. loan, overdraft or other financial package. They will also look closely at how you plan to use their money and the effect it will have on the business. They will also look at whether you have asked for too much or too little money from them.
Repayment – the bank will not lend you any money unless they know you can repay it and so they will want to know where the repayment is coming from.