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How to finance your franchise

The key challenge for most new business boils down to one word: "money". Where do you find the capital to launch your new company and ensure there is sufficient cash flow? One solution is grants and loans. It is surprising how many options are available to those who are thinking of starting their own business.



The key challenge for most new business boils down to one word: “money”. Where do you find the capital to launch your new company and ensure there is sufficient cash flow? One solution is grants and loans. It is surprising how many options are available to those who are thinking of starting their own business.

Here is a brief overview of the practicalities of financing a franchise. The first step is to work out how much you will be able to invest of your own money, taking into account savings, help from friends or relatives. You are then in a position to approach a franchisor with a clear idea of what is possible.

The cost of your initial franchise arrangement with the franchisor will vary according to circumstances, but you will need to budget, not just for your initial franchise package fee, but for running costs, including business premises and transport costs. Once you have done this, and assuming that your working capital does not cover your full projected costs, you will be able to approach a bank for a loan.

Many banks, including Lloyds TSB, NatWest and HSBC, have special franchise departments and, if you are working with a well-reputed franchisor, will be broadly amenable to your loan application and be prepared to lend up to 70 per cent of your total investment. But they will not lend you the money on spec. You will be expected to draw up a credible three-year financial plan. The franchisor will be able to help you with this. The banks will also want to satisfy themselves that you are not dependent on other loans to fund your initial deposit.

You should be able to access various different types of business loan for your franchise, depending on your own financial circumstances. They range from a simple business overdraft, to a small business loan, usually between £1,000 and £25,000, and a flexible business loan, if you want to borrow more than £25,000. Any loan you take out will be limited to the length of the franchise agreement, which might be three or five years.

If you have trouble finding a bank willing to provide you with a loan, a good fallback option is the government-backed Enterprise Finance Guarantee scheme (www.business-bank.co.uk).

As for business grants and bursaries, some franchises occasionally fall within the eligibility criteria for grants from central and local government or charitable bodies. Perhaps you want to take out your franchise in an economically depressed area, for example? That might well qualify you for a grant to cover some of your franchise start-up costs. But be warned: the grant application process can be time-consuming. There is a good guide to franchise grants at www.abusinessfranchise.co.uk and other useful sources include www.startups.co.uk and www.whichfranchise.com.

So what is the best way to tackle funding? Provided that you approach the challenge in a businesslike manner, you should be able to find others prepared to give your enterprise a helping hand. Do your homework, run the figures and talk to the Winkworth team for advice that could turn your new property franchise into a winning success story.

Contact Gina Piper (Business Affairs Manager) on 020 7355 0200 or via email at gpiper@winkworth.com to find out more about starting your own Winkworth franchise. All conversations will be strictly private and confidential.

Find more articles, tips and advice on taking the next step on the  Winkworth franchising blog: www.winkworth.co.uk/estate-agent-franchise

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