Franchisee finance

Based on the start-up costs, franchisees will probably need to borrow to buy a franchise. They will need to put in some cash  as well, and in early days of the franchise, banks will probably lend franchisees less than 50% of the start-up costs.
Once a franchise network is well established, with a good track record, franchisees may be able to borrow up to two thirds of the start-up costs.
The first step is to establish how much money a franchisee can afford to invest in the business: (a) to set up the business (b)  to cover cash flow requirements (including the repayment of any borrowing).
A franchisee’s personal financial standing will clearly affect not only their ability to obtain finance for the business, but also their ability to make a successful business.
If personal drawings are very high to fund an extravagant lifestyle, the business can be under pressure in the difficult early stages.
Prospective franchisees should consider the following:
How much will you be able to borrow? Make a full list of your personal expenditure: mortgage, consumer loans, household bills, etc. This exercise will show how much money you will need to take out of the business in order to live.
The type of security you can give to the bank to back up the loan.
Prepare a business plan. This is a vital document to obtain finance from the bank. The franchisor will often help you with this.
Prepare cash flow forecasts (part of the business plan) for the first 2-3 years of the business. However, a very good understanding of the figures is needed: (a) what are they based on? (b) how much do you need to turnover in order to break-even?
Direct Financing. Many, mainly larger, franchises offer financing direct to their franchisees.

Government Initiatives for small businesses.

Other sources of non-traditional financing. With the popularity of business ownership increasing, there are more and more financing options available to meet franchisees’ needs and preferences. A vast range of financing options can be explored, like venture capital and private equity. 

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