Frequently Asked Questions

Experts from the finance and banking industry share their knowledge and experience to answer some of the most common questions asked when securing franchise funding.

Question: Do I have to use any assets, such as my home, to secure a franchise loan?

With loans over £25,000, banks are likely to want to have some sort of security for the loan in the event of default. If you have more than 20 per cent equity in your house or any other property they may well request a legal charge.

If you don’t have any other assets, there is a scheme called the Enterprise Finance Guarantee where the Government secures most of the loan, this is widely used in the franchise sector. This is where you fit all criteria the bank needs with the exception of having available security; therefore the Government will provide the bank with a guarantee for an ongoing fee from you.

Just because the Government is guaranteeing the loan does not mean the bank will definitely approve any lending and a good lending case still needs to be put forward.
Liam Walker, Director of Anglia Finance Ltd (pictured right, top)

Question: Why do banks prefer to back franchises?

Franchising follows a proven business model, a safer option than going into business on your own. It is considered more favourably for finance than a conventional start-up business due to:

  • Reduced risk
  • Lower failure rate
  • Proven market for products and services
  • Tried and tested systems
  • Ongoing support and training
  • Growing segment of the business market

The UK franchise market has continued to grow and prosper, even during the recession. This resilience is reflected in a stronger than average credit performance.
Cathryn Hayes, Head of Franchising of HSBC (pictured right, centre)

Question: How much can the banks lend me?

First and foremost, banks that have franchise departments will have evaluated the franchise itself to ensure that they are comfortable that it offers a viable opportunity for potential investors. A bank’s franchise experts will carry out a thorough assessment of the franchise including the franchise package, fees, training programme, ongoing support, financial strength, ideal franchise owner profile and whether the financial projections for individual franchise owners are realistic and achievable. They will also monitor the performance of any existing franchise owners that bank with them.

Assuming the investment relates to an ethical and viable franchise opportunity, the bank will then look at the investor to ensure that they have the skills and attributes to operate the franchise successfully.

A review of the business plan and the financial projections are essential to understand the franchise owner’s individual requirements and it is likely that this review will be carried out at a face-to-face meeting with a Bank Manager.

Expect the business plan to be challenged and the Bank Manager will expect you to be able to answer questions about the financial and operational aspects of the business confidently.
Richard Holden, Head of Franchising of Lloyds TSB Commercial (pictured right, bottom)