All you need to know about financing a franchise
No startup business can operate without capital investment, and launching a courier franchise is no different in that regard. Whilst there are several ways an entrepreneur can fund a franchise, it's essential to understand what those options entail fully.
The advantages of financing a shipping franchise
The outlay expected to fund a shipping franchise can range from between £30,000 to £70,000, though whilst this is no small figure, this cost pales in comparison to the six-figure and millions of pounds in costs a potential franchise owner will be expected to absorb when opening a restaurant or retail franchise.
Another advantage that funding a shipping franchise has over other types of franchise models, is that the initial franchise fee is the only thing that needs to be paid and other costs such as setting up offices, hiring staff, buying stock and equipment are non-existent, especially for shipping franchises that allow franchisees to operate from anywhere with just a desk, mobile phone and PC, like World Options.
A low-cost franchise and the opportunity for a franchisee to start selling services and making money nearly immediately are things that may make some lenders and commercial banks more open to lending money.
Get Your Business Plan Right
Before starting getting financing for a franchise, you must create a business plan that ticks all the boxes. Some tips to bear in mind when creating a business plan include:
Write an executive summary which should be a short overview of the franchise, including the name, location, and history.
Have a mission statement, covering briefly what your franchise does and why it exists.
Write a vision statement that includes imagining where you want the franchise to be in the future.
Conduct market analysis containing a thorough explanation of the franchise’s market, including estimated income and expenditures.
Speak about your competitive strategy – a clear understanding of the competition and how your franchise will differentiate itself and capture and retain customers.
Funding a Shipping Franchise With A Business Loan
There are several high street banks that offer business loans to people looking to fund their shipping franchise. Banks that offer this facility include:
NatWest
We recommend that instead of getting a loan from the first bank you see, it’s wise to visit all banks and look at what they offer in terms of the loan amount, repayment terms and interest rates.
Exploring Other Franchise Financing Options
If you're unable to get the finance required to launch a shipping franchise from a bank, you may wish to consider alternative methods of obtaining funding. These could include:
Getting Funding From Your Franchisor
Many franchisors offer various types of financing programmes for prospective franchisees. These include loans, grants, equity investments.
A franchise investment loan allows you to cover some of the upfront costs for opening your franchise. It’s usually not structured like a traditional bank loan, and the franchisor may include specific rules or restrictions, so be sure to read the fine print before signing the agreement.
From Government and Local Grants
You may be able to get funding from the UK government if you meet specific requirements. Residents of Scotland, Wales and Northern Ireland may also receive grants, as their local governments have active schemes for individuals seeking to establish new businesses, such as a shipping franchise.
Obtaining a loan from friends and family
If you're unable to get enough money from a bank or have a bad credit history and your application is rejected, then getting a loan from friends or family may be an option to explore. We recommend that a formal agreement is written between the parties and that a clear repayment plan be agreed upon.
From an existing business
Some entrepreneurs decide to purchase a shipping franchise after already owning an existing business. For some, this may be a Freight carrier or a small parcel courier looking to become a franchise owner to take advantage of rates offered by the franchise.
Business owners looking to diversify their business interests may invest in a franchise and use income from their existing business to help with financing.
Remortgaging Your House
You can also consider borrowing against your home equity. Remortgaging your house could help you obtain the money you need to fund your shipping franchise. You just need to make sure that you can afford to pay back the loan when it comes due.
Personal Savings
If you don't want to get a bank loan and have enough money saved up, using your savings is a good option for funding a courier franchise. We advise that you don't use up the entirety of your savings and that enough is set aside for future needs.
Liquidating assets
If there are no other options available, raising cash by selling assets could be a possibility. These could include property investments, cars, stocks, businesses and personal possessions. It's important to remember that liquidating assets should only be done if you are financially comfortable doing so.
In summary, here are some points to consider:
1. Before approaching a bank for a loan, write a business plan covering everything from the franchise’s name, the target market, ideal customer, the products/services offered, the competitive landscape, marketing plans, financial forecasts, etc.
2. Find out what type of financing is available to you, including your plans to pay the money back and if you'll need to spend any of your cash to fund the shipping franchise.
3. Consider whether you can get funding from your franchisor or a bank.
4. Make sure you have enough money saved up to cover at least six months' operating expenses. If you plan on getting a loan, make sure that you have a good credit history and some collateral available to secure the loan.
*World Options Ltd are not financial advisors, and in no way do we offer financial advice. The content in this article is for educational purposes only.
