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Frequently asked questions

Finance and banking experts share their industry knowledge and experience to answer some of the most common questions asked when securing franchise funding

How much can banks lend me?

It is important to consider the financial implications carefully before buying a franchise. You are entering into a long-term commitment and need to get the finance right at the outset.

For a well-established franchise with a good track record with ourselves, we can lend up to 70 per cent of the total start up costs, including working capital. For a less established franchise, we would consider lending up to 50 per cent of the total start up costs including working capital, subject to status, supported by a suitable business plan.

There are a number of costs to be taken into account, depending on the type of franchise. As well as the initial franchise fee you may need to purchase a liveried van or stock. A retail franchise will incur the cost of leasing premises and any refurbishment, as well as shop front, branding, fixtures and fittings. If employing staff, there may be recruitment costs. There will also be marketing costs to launch the business.
Cathryn Hayes, Head of Franchising at HSBC Bank

Why do banks prefer to back franchises?

Franchise specialist banks, such as Lloyds TSB, are keen to assist any strong business proposition where the business owner is seeking financial backing to support their plans. Naturally, those investing in a well established franchise brand have the benefit of a proven business model, initial training and ongoing support from the franchisor. This is something that isn’t available to those setting up their business independently from scratch. Investing in a tried and tested franchise opportunity reduces the risk of setting up in business, however it doesn’t eliminate risk altogether. Any business takes a great deal of commitment, energy and hard work from the business owner to develop successfully.
Richard Holden, Head of Franchising at Lloyds TSB Commercial

How long does it take from applying for a loan to receiving the funds?

This is a difficult question to be specific about, as it depends whether we are lending to the franchise owners on a secured or unsecured basis. However, once we have received all the paperwork from a franchise owner a decision is normally made within 72 hours. If it is an unsecured loan, the funds will be available within a few days from that. If it is a secured loan, there could be third parties involved that we have no control over the speed at which they deal with matters, such as solicitors and the Land Registry, and it could take up to two months for the facilities to be drawn or as short as a month. If we are securing our facilities against the Enterprise Finance Guarantee this will take two to four weeks to complete.
Mark Scott, Director of Franchise Development at NatWest