DCA Q&A: WILL A FRANCHISE MAKE START-UP FINANCE EASIER?
Q: I’m in the early stages of a potential career change, opening my own food service business at the age of 45. While I have good equity value in my home, and have never failed to pay my mortgage, most of my savings are locked away in a pension fund, so I will need to borrow quite substantially to meet start-up costs. One of the options I’ve been considering is a franchise – while this would add to the costs, it would help me hit the ground running. I’m also hoping that it will make credit easier to obtain – am I right?
A: Depending on the franchise, you may well be. In fact, some franchising organisations have a scheme to offer start-up credit to their franchisees, though you’ll usually need to put up some of your own cash to participate. Perhaps it would be viable to take out a personal loan, or borrow from friends or family?
Failing that, banks will of course take the benefits of a franchise into account when they’re evaluating a loan application – particularly if you’re talking about an established brand, that reassurance that you’ll have customers who know you from day 1 is very good. They will, however, be aware of the downsides: higher ongoing costs and a less-flexible business model. You can find quite a useful pointer on the pros and cons of franchising – particularly in the food service space – here. Your business advisor in the bank should be aware of these points, and they will feed into the approval decision.
In short, a franchise won’t get you finance on its own: you’ll still need a solid business plan and a good lending proposition. But it will answer some of the questions that a bank immediately has about your potential market, and – depending on the kind of documentation provided by the franchisor – can add credibility to your projections. A good credit history and equity in your home will also be in your favour.
We advise a lot of businesspeople – and potential entrepreneurs – in the early start up stages, as critical decisions made at this juncture have a major impact on your business going forward. If you’d like to set up an initial, no-obligation chat about your options, just contact us to set one up.
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