Everything You Need To Know
What Is A Franchise Business? How To Become A Franchisee
According to the British Franchise Association there are now over 44,200 franchisee-owned businesses across the UK, a figure that has increased by 14% in just two years. Franchise businesses provide roughly £15.1 billion to the economy as well as employment to over 621,0000 people.
This rising sector has set new records for profitability – now, over ½ of UK franchise businesses claim to have an annual turnover of more than £250,000.
What Is A Franchise Business?
Described simply, a franchise business is a business where the owners (franchisers) sell the rights to their business model to third party, independent operators – referred to as franchisees. A common way of expanding business, the franchiser will have already established their business’ brand, customer base and understanding of the market before choosing to scale up. The aim with franchising is to get someone else to replicate the success of the original business, and more businesses are franchises than you may realise. Take the well-known brands McDonalds, Subway and Papa John’s as prime examples of this…
How Does Franchising Work?
It’s important to remember that a franchise is not an independent business. Essentially, the franchisee buys an opportunity to run a business based on the franchisor’s already established business model and methods to ensure the franchisee meets the standards already in place. Franchisors usually create an Operations Manual for franchisee business owners, which acts as a strategy for how their business should be run. All logistics are covered in the Operations Manual, mapping out everything from marketing to products, services, store / site layout, employee recruitment and training.
Before a franchisee sets up, most franchisers will set up extensive training to ensure the business’ future success. When undertaking a franchise, a Franchise Agreement will be set up to stipulate all terms of the business relationship, covering factors like:
- Initial fees
- Operational support
- Franchise license length
- Territory and restrictions
Is Owning A Franchise A Good Investment?
Buying into a franchise is a different experience to setting up your own limited company. Less freedom exists as you agree to uphold the franchisor’s way of doing business. However, in return for this compromise you gain the opportunity to run a business on already proven models – which means your franchise has a high probability of success and even higher profit potential!
Pros & Cons Of Franchise Businesses
Pro - Ongoing Support: As mentioned previously, before undertaking a franchise you will be provided with extensive training. Franchise business owners can access first-hand support from franchisors, who also help with finding and retaining customers when getting the business off the ground. The amount of support offered will vary from franchisor to franchisor – but you can rest assured you won’t be left alone to struggle.
Pro – Access To Funding: Some franchisors will be willing to offer financial help when the business is first starting out. If the franchisor is reluctant to do so, franchise businesses can turn to traditional and alternative funding facilities – both of which are keen to lend to franchises on account of the increased security of being backed by a larger, already established firm.
Pro – Big Brands = Success: Franchisees building businesses under well-known brands can benefit from having an already well established market and respected business name – meaning you don’t need to waste time and energy in generating brand awareness.
Con – Less Business Freedom: Entrepreneurial creativity is typically restricted for franchises. Franchisors provide Operations Manuals that indicate how they want the business run, and there are often penalties applied for franchisees that go against these wishes.
Con – Fees: Franchisors charge franchisees an initial lump sum fee to set up a business using their name, logo etc. This amount varies according to the franchisor, and many franchise businesses are also forced to pay ongoing royalty fees.
Franchise Business Loans Finance Routes For Franchises
Acquiring a franchise can be costly. As well as paying the initial franchise fee, franchisees then need to find a way to cover expenses such as purchasing of premises, staff hire and buying stock. These costs aren’t typically paid by a franchisor, so you as the business owner will have to find a way to come up with the required capital.
What Is Franchise Financing?
Franchise finance helps franchise businesses in need of funding to startup, cover overheads or fund new ventures, such as expansion. There are several funding routes that franchisees can take to obtain capital quickly, typically then paying the money back over time with interest.
Can You Get A Loan For Franchise?
Yes. As a franchise you stand a greater chance of receiving funding from both banks and online lenders. This is because, in the eyes of the lender there is increased security from an already successful brand behind a franchise, compared to an entrepreneur founding a new startup from scratch. At SME Loans, franchises can access business loans from £1,000 to £500,000. Our highly competitive interest rates are a big pull for franchise owners, who can also benefit from tailored repayment periods from 1 to 5 years.
Our franchise loans are unsecured, which means that there is no need to ‘secure’ the loan against valuable franchise assets. Instead, lenders will typically ask for a personal guarantee. The personal guarantee is a legally binding document that agrees if your franchise defaults on loan repayments, you as the franchisee become personally liable for repaying the money. Whilst this may sound daunting, if you’re confident enough in your business to take out finance in the first place – there really is no need to worry.
Is It Easy To Get A Business Loan For Franchise?
Compared to other business types, it is typically far easier to secure finance quickly. If you think about it, franchises appear to pose far less of a risk due to the fact they have a bigger brand backed behind them. Lenders are aware that both opening and expanding a franchise requires considerable collateral, but they are even more conscious of the potential for profit they bring.
If you have experienced bad credit in the past, it doesn’t mean you have no options. At SME Loans we work with a panel of lenders who consider all credit scores and offer bad credit business loans for franchises.
Apply For Franchise Finance SME Loans Application
At SME Loans we have helped several franchises obtain finance that has helped them attain their franchise business goals. We know that you’re busy, which is why our panel of trusted, flexible lenders can provide access to funding in just 24 hours.
Relieving financial burdens from businesses is what we do best. We are able to offer your franchise finance if it is registered and trading in the UK (actively trading for 6 months), has a monthly turnover of £5,000 and the franchisee is over the age of 18. If all of these apply and you’re in need of a franchise business loan, follow our 5 simple steps for application today.
After clicking to apply you will be redirected to a new page tab where you will be asked to provide some basic details regarding your franchise, including:
- The name
- The number of months or years trading
- The franchise’s monthly turnover
- The amount you are looking to borrow
Once you’ve told us a bit more about your franchise, please expect to disclose your personal details: including your full name, position in the business and contact details.
Of most importance is reading through the terms and conditions before clicking to accept and receive your quote. After you’ve read through the terms, your application will quickly be reviewed by one of our approved business finance suppliers – their job is to find the best lender for your franchise.
One of our dedicated account managers will be in touch by phone or email to discuss the terms of your loan agreement.
Take time to read fully through the terms of agreement, asking any questions you are unsure of before signing the relevant documentation and returning it to the lender. After that the money will be deposited in your account in as little as 24 hours.
Don’t Delay, Apply Today
Our application process is designed with busy business owners in mind, it should be quick and hassle-free, but should there be anything you’re confused about, feel free to give us a call on 020 3475 9213.