Funding your purchase of a franchise resale

Key to your decision about investing in a franchise is whether it will be easier to obtain funding for a territory that is already operating or establishing a new one.

When entering the franchise market a key decision is whether to take on a new territory start-up or to buy an existing franchise that has been trading.

Your thought process behind this will weigh up the benefits of an established business that has a proven track record against the increased cost of the purchase.

What you need to know is that banks prefer to lend to franchises, as it is an established brand and provides ongoing support. They also prefer to lend to franchise resales, as not only is there an established brand, there is also an established local business. By making this decision you give yourself the best chance of obtaining finance to enable you to run your own business.

So how much can you borrow?

The amount and level you will be able to borrow really does vary with each individual case. For this reason, I would encourage you to seek professional advice in the form on an independent commercial finance broker before approaching a bank.

You will be given guidance and realistic expectations at an early stage to build your business plan from. Typically the most you will be able to borrow is 70 per cent of the purchase price on a conventional loan, maybe a little more in exceptional circumstances. If you do not have 30 per cent of the purchase price, there may be other options available to you such as refinancing any assets in the business – vehicles for example.

Another option is if the business has outstanding invoices you may be able to raise additional funds against these with a product called factoring.

You will still need a robust business plan in order to obtain funding. This will need to incorporate the usual information such as your CV – how it will differ is that the financial information contained within it will be based largely on historic factual information. This also gives a solid foundation in which to base your cash flow projections on.

The main part of any lending application the bank looks at is how they are going to be repaid, they are much more likely to lend you money if it can be shown there is an existing business that could afford the repayments rather than basing it just on expected projections that are more likely to vary.

Another key area a bank will look at is security. Do you have equity in a property to secure the loan against? If not, there is an option available called the Enterprise Finance Guarantee loan, the government will provide security for you in exchange for a small ongoing fee.

There are certain criteria to qualify for this type of funding, please contact Anglia Finance should you need more detailed information. So while you may initially dismiss a franchise resale as they will cost more than starting yourself, this may be the perfect way to turn your business dreams into a reality.

If business plans, annual accounts and cash flow forecasts sound like a foreign language please do not panic, there are a team of reputable companies in The Franchise Magazine that can assist you and are on the end of a telephone to help you achieve your goals.

Written by Liam Walker