Richard Pakey explores the options for financing and affordability, especially for those without capital to invest
Zero to low funds? There are many low-cost franchises available. The first fee to be aware of is the license, or franchise, fee. There are various levels of investment covering many different sectors, so the franchise fee typically ranges from very little up to £30,000 and above. Bear in mind that the franchise fee doesn’t necessarily mean the total investment that’s required from you.
With low-cost franchise fees of up to £25,000, there are options to obtain a government-backed loan of up to £25,000 per applicant. These are not grants, but quite low-interest loans, typically payable over many years, which means you could be paying a few hundred pounds back per month on a £15,000 franchise fee rather than being required to stump up the investment upfront. It’s still a loan that needs to be repaid though!
If you have a business partner, there’s an option to obtain as much as £50,000 to invest in your franchise. This could be useful if you’re looking for additional funds to provide working capital. Simply search for franchise funding and you’ll find plenty of online support to guide you through the process.
Does low-cost mean low income?
This would be a great question to ask any prospective franchisor. When options require additional funds – for example, equipment and stock, or a brick-and-mortar restaurant – the total investment required will be more than any advertised franchise fee. In cases like these, the franchise fee is often relatively low because of the additional investment required, but many of these types of franchises can go on to generate six or even seven figures. Go and check them out for yourself – often, of course, they typically have higher fixed costs than other types of businesses, requiring additional working capital, so it’s very important not to overlook this point in any of your forecastings.
Another option that doesn’t need additional investment could be a working-from-home franchise. These seem to be more popular than ever in 2023 – if we ever had anything to thank for Covid – and often the initial fee covers any initial and ongoing training provided by the franchisor. In order to make it even easier to commit, the fee is often low, as the involvement required from you is most likely your time and expertise. In cases such as these, there are often no significant costs to either party, but depending on your specialism, it can be very lucrative to the tune of five or six figures per year.
How do you choose the right one?
Start with What-Franchise.com, where you can find hundreds of profitable options. Focus on a few key elements to help whittle them down, including sectors you want to be involved with, location and investment level.
Can you use your own bank for finance? Yes, you can! There are also online options that use your credit history to see how credit-worthy you are. If you are able to obtain finance in this way, you’ll then be pre-approved for some or all of the franchise costs. Quite often this can be done through unsecured loans too, which might be advantageous in some circumstances.
You will undoubtedly be advised to seek advice from a specialist lender or broker too. These companies have inside knowledge of the breakdown of franchise costs and will advise on what type of finance facility will cover which elements. Quite often, they can challenge bank rates as they spread themselves across multiple lenders. Often the franchise company you are researching will have contacts with people that have relationships with lenders and brokers who will be happy to help you.
There are always options within franchising too. Seek professional assistance if you’re struggling with finance. You’ll find everyone in the franchise sector very friendly and willing to help you – one thing I’d happily guarantee!
Richard Pakey is a franchising expert and managing director for the award-winning Lime Licensing Group.