After examining all your business options you’ve decided to buy a franchise.
So: how are you going to raise money to secure your territory?
Most banks and lending institutions require you to have a decent credit record and a percentage of the buying price in cash.
However, if you have security in the form of shares, property or suchlike then some banks will be willing and able to fund 100% of the purchase price.
The advantage of using your property as security is that it’s possible to get a loan over a much longer term, thereby reducing your monthly repayments.
Be careful with this approach though, because if the business fails then your property is at risk.
If you have a poor credit history or are unable to provide security then it is still possible to raise funds if you can persuade a wealthy individual to be your guarantor.
In the event of you being unable to repay the loan the guarantor will be required to make up any shortfall.
A good idea is to approach lenders that have special units set up to deal with franchise purchases.
They can usually offer longer repayment terms and more favourable interest rates to people that fulfil their lending criteria.
Banks do not just look at how much money you are willing to commit and how much security you have to offer.
They’re also interested in the type of person you are and how committed you’re likely to be in the business once they’ve given you their money.
If they believe you have the ability to run a business, look presentable and like you’ve taken the time to create a decent business plan – this will help you secure the most favourable loan from the right lender.
It is a good idea to take out insurance to help you meet the repayments if you fall ill or have an accident.
However, this is where most lenders make their best mark-up and it’s unnecessary to take out an insurance policy from your lender.
It’s far better to shop around as a number of companies specialise in this field alone and could save you thousands over the term of your loan.
Even if you’ve taken out insurance from your lender you’ll still have time to shop around, as with most forms of insurance you have a short cooling off period.
With the credit crunch it is now harder than ever to get a low interest rate loan, but with a well prepared business plan and some cash or security it is still possible to get the right funding solution for your requirements.
Nazir Daud is the founder of CityLocal
