Are you interested in opening a franchise, but you aren’t sure where to start financially?
Luckily, there are loans available that specifically cater to a new franchisee, as well as lots of information regarding what questions you might want to ask your franchisor.
In this guide, you’ll find out what you need to know about franchise loans, including what they are and how you can apply.
Want to find out more?
What’s in this guide?
Top 5 Franchise loan providers
1. Franchise Finance
Type: Commercial finance brokers
Loan amount: £5,000 to £500,000+
Typical APR: Bespoke
Loan term: Up to five years
Franchise Finance has established themselves as finance professionals since their inception in 1979.
They are generally the go-to people when it comes to financing for franchises, and they are members of the British Franchise Association, which is a body that has members which span across the franchise industry in the UK.
Franchise Finance is also regulated by the financial conduct authority (FCA).
Company rating on Reviews.co.uk: 4.8/5
2. Startup Loans
Loan amount: Up to £25,000
Typical APR: 6%
Loan term: 1 to 5 years
Startup Loans is a government program to help startup companies to get the necessary finance that they need, especially when banks may have rejected your application.
As long as you have a solid business plan, you could get funding of up to £25,000 to start up your brand new franchise.
This can help you well on your way to establishing your franchise, even though they don’t offer loans as large as some other companies.
Representative: Borrowing £25,000 for three years means that you will pay monthly instalments of £760.55, so in total, you will be paying back £27,379.74 which means £2,379.74 of interest.
Company rating on Trustpilot: 1/5
3. Lloyds Bank
Loan amount: £25,000 to £600,000
Typical APR: Bespoke
Loan term: 1 to 10 years
Lloyds Bank is a household name when it comes to banking, and if you are planning on becoming a franchise they may have some options for you.
For instance, with their enterprise finance guarantee, newer businesses or companies that might have very little security can secure funding from between £25,000 to £600,000 to help you set up your business and pay for the essentials.
This is regardless of the size of your business, so you know you won’t be rejected based solely on the turnover of your business, or it’s age.
Company rating on Trustpilot: 1/5
4. Boost Capital
Type: Alternative Finance Provider
Loan amount: £3,000 – £500,000
Typical APR: 1.5% – 2.5% monthly APR
Loan term: 4 to 18 months
Boost Capital is a highly recommended alternative finance provider in the UK, with many customers giving this lender five stars on trusted websites such as Trustpilot.
They offer fast funding, with minimal paperwork, approval in 24 hours and access to your funds in around two days.
Representative: Borrow £10,000 for 12 months at 47.9% representative APR. Interest rate of 36.74% p.a. (fixed). Total amount payable is £12,100.
Company rating on Trustpilot: 5/5
Type: Alternative finance provider
Loan amount: £2,500 to £300,000
Interest: No APR
Loan term: Bespoke
Liberis is an alternative loan provider which allows customers to get funding that they may not have been able to secure elsewhere.
With no APR or early repayment fees, you’ll only ever need to pay one fixed price which means that you know what you’re going to be paying.
This can be an excellent solution for many companies that need a quick injection of funds.
Company rating on Trustpilot: 3/5
This list of the top ten business loan providers mainly takes into consideration the companies customer reputation, how much your business can borrow and the interest your lender will charge you.
What is a franchise?
A franchise is typically when a successful business offers people an opportunity to open up their branch of the brand in their area, usually after being trained and learning the company from the inside out.
This allows the franchisor to focus on their own business, while franchisees can lower the risk of starting a business by getting involved with a company that already has a proven track record.
It’s atypical for a business that isn’t currently successful to start franchising, so if this is the case, you should be asking some serious questions about how secure your investment will be.
What is a franchise loan?
Franchise loans are loans that are specifically designed to fund your franchise.
This can be to pay for things such as workers, equipment, premises or anything else that you might need for your business to function efficiently.
Usually, franchise loans will be for a shorter term length that is between one and five years for instance, and you can generally borrow anything from £1,000 to £500,000 depending on the lender.
You should keep in mind that you don’t necessarily need to borrow as much as you possibly can, and you need to be mindful of the size of the repayments you can realistically pay back.
How can a franchise loan help me?
Many costs go into setting up a franchise, here are a few that you should take into consideration:
- The initial franchise fee
- A training fee for you and your employees
- Rent on the premises you may need
- Any vehicles for your company
- Purchasing essential equipment
- Marketing costs
- Working capital costs
A franchise loan can help you to fund all of these costs, or a portion of them if you already have your savings.
This can take some of the immediate strain off your shoulders as you can focus on the present and make manageable monthly repayments that won’t be too overwhelming.
Sometimes repayments can be spread over the years, making them relatively small in comparison to shorter-term loans.
What do I need to apply?
These are the types of documentation you’ll usually need to apply for a franchise loan:
- Often you will need a summary of your business, including what it does and how it does it.
- Your details, which means your age, location, which depends on you financially and your contact details.
- The experience that you have, personally and in business as well as any skills you have.
- You need to provide a rundown of the franchise, including any market research and analysis you might have.
- A breakdown of your operation; this means including costs like your new location, equipment and any stock for instance.
- The management of your business, so anyone you have in key positions.
- Your strategy when it comes to things such as marketing, as well as your financial projections for your company.
- Personal finances are often included in the documentation you might need, as it goes to show your ability to borrow and pay the money back.
You may need more or less documentation than this to get a franchise loan, dependent on the lender. However, this covers most of the information you may need to provide.
Who offers the best franchise loans?
The best lender for you and your company depends on many different factors.
For instance, you may only need to borrow a minimal amount, in which case a loan from Startup Loans might be the best option, as they offer very low-interest rates and no arrangement fees.
Or you could need a very substantial loan, so Lloyds Bank might be better suited as their business relationship managers can help you on your way with finances as well as advice to help you succeed.
This might boil down to whether you want a short-term loan which you typically payback in under two years, or you could need a long-term loan that you might pay back in around ten years.
Take a look at the different types of loan below.
What is a short-term business loan?
For your business, a short-term business loan is a quick injection of cash that can help launch your business to the next level.
This could be for depositing an office space, hiring some new workers or purchasing things such as a business phone system or other office supplies.
A short-term loan allows you to pay back this money quicker.
For instance, this could be over six months.
So while your repayment amounts might be high, you might be able to pay it off in a few months which will let your budget easier.
These types of loans could be from a bank, peer-to-peer lenders or even alternative lenders; but more about that below.
When a short-term business loan might be effective
Unsure about whether a short-term business loan might be good for you?
Here are a few examples of when this type of loan could be best for you.
- You need to make an investment that will generate a high profit
- Allow fluid cash flow
- You have a weaker credit rating that means you will be rejected for other loans
Franchise pros and cons
✔ You have less risk by going with an established business model
✔ There is usually support for you as a franchisee that you wouldn’t have had otherwise
✔ You will likely have access to training for yourself and your employees
✔ The franchisor will usually run promotional campaigns which you will benefit from
✔ There is usually help available for setting up your franchise
✔ Franchises often have a higher success rate than other startup companies
✔ Banks typically have managers who specialise in franchises to give you additional help
✗ Buying a franchise can be expensive
✗ Franchises often have their own rules and regulations, giving you less flexibility
✗ It may be hard to sell your franchise in the future
In conclusion, many pros and cons go into deciding whether a franchise might be right for you, but the good news is that when it comes to loans, you aren’t short for either option or help that you could receive.
Take a look at the ExpertSure guides to find out more about your finances, or fill out the form at the top of the page to look at your loan options.