The funding market for franchises

Posted on 21st March 2016 at 4:10pm by Carl Reader in Business

One of the main advantages of investing in a franchise which has not been touched on above, is the willingness of major banks to support the business model. From their perspective, they can see the reduced risk of a business operated under a franchise model versus the significant risk that they see with general start ups.

To put this into context, depending on the source that you use for the statistics, at least 50% of business fail within the first five years (the average term of a franchise agreement); which is a significantly higher failure rate than the franchise industry. This statistic will undoubtedly be helped by the fact that 97% of franchisees report profitability, according to the 2015 BFA / Natwest Survey. This is due to the advantages highlighted above; in that you receive the proven blueprint that has worked in several locations before.

This has the benefit to the franchise industry of improved banking terms when compared to lending for non-franchised businesses. In general, the banks that have an active appetite to work within the franchise industry will offer 70% of the capital requirement for an established, reputable franchise brand; compared to 50% of the capital requirement for a general business start up.

The above is an extract from The Franchising Handbook, which is due for release later this year. Follow this link to pre-order and be one of the first to read it!

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