For any entrepreneur planning to buy a franchise, securing the right finance is a crucial step. The good news is that lenders often view franchises as a lower-risk investment compared to independent startups, but they still have a checklist of criteria they expect to be met.
Here’s what we feel are the need-to-know facts about franchise-specific finance options and what lenders are looking for.
A proven business model
One of the biggest advantages of a franchise is the established business model. Lenders want to see that the franchise being investing into has a track record of success.
They’ll consider factors like:
- How long the franchise has been operating
- Number of existing franchisees
- Average performance of franchise units
- Support and training offered by the franchisor
A strong franchisor reputation makes lenders more confident in the ability to generate steady revenue.
A solid business plan
Even though the investment being made is into a proven system, lenders still expect a detailed business plan. This should include:
- Startup costs and funding requirements
- Local market research
- Sales and cash flow forecasts
- Breakeven analysis
- An entrepreneur’s own experience and skills
A well-prepared plan demonstrates a fully understanding of the numbers and that there is a realistic path to profitability.
Personal investment
Most lenders want to see that the new owner will have made some personal investment. This typically means contributing 30 to 50% of the total investment from their own savings. Personal investment reduces lender risk and shows a firm commitment to the business.
Creditworthiness
Personal credit history still matters. Lenders will check a credit score, outstanding debts and overall financial position. Good credit and a clean financial track record will make it easier to secure favourable terms.
Sector experience (or strong training support)
While direct experience in the franchise’s industry isn’t always essential, lenders want to be sure the business can be run successfully. If the new owner doesn’t have industry experience, it is advisable to highlight the franchisor’s training program and any transferable skills that can be introduced.
Franchise-specific finance products
Many lenders offer finance tailored specifically for franchises. At NGI, we work with a panel of franchise-friendly lenders offering:
- Loans for franchise fees, equipment and fit-out
- Vehicle and asset finance
- Working capital solutions to manage cash flow
- Multi-site expansion finance for growth
This specialisation means we can often access more competitive rates and terms compared to standard business loans.
The bottom line
Franchise finance can be more straightforward than funding an independent business, but preparation is key. By understanding what lenders look for and putting together a strong plan, a new franchisee will give themselves the best chance of securing the funds they need to get started.
If you’d like guidance on preparing your franchise finance application, get in touch with our team. Call 01993 706403 or e-mail hello@ngifranchisefunding.co.uk, we will help you explore the right funding options for your franchise journey.