Most franchisees fund the start-up cost with a mix of their own money, a business loan and asset finance for equipment and vehicles. Lenders are often more comfortable with an established franchise brand, but they'll still expect a meaningful contribution from you and a plan that stands up on its own. Total up every cost, not just the franchise fee, before you approach anyone.
A franchise gives you a brand, a system and support from people who've done it before. In return you pay an up-front fee and ongoing charges, and you follow the franchisor's rules. For many people it's a less risky way into running a business than starting from scratch.
Funding a franchise works much like funding any new business, with one big difference: the lender can look at how the model has performed elsewhere. This guide covers what you'll need to pay for, how lenders see franchises, how much you'll need to put in, and what to check before you sign anything.
What you'll need to pay for
The franchise fee is the figure most people focus on, but it's often a minority of the total. Build a budget that covers everything:
- The initial franchise fee. What you pay the franchisor for the right to trade under its brand, along with initial training and support. If the franchisor is VAT-registered, the fee will usually have VAT added, so budget for that until you can reclaim it.
- Fit-out and equipment. Shopfitting, signage, kitchen or salon equipment, IT and tills, often to the franchisor's specification.
- Vehicles. For van-based and mobile franchises, the vehicle can be one of the biggest costs.
- Premises costs. A deposit on the lease, rent in advance and legal fees.
- Opening stock and launch marketing.
- Professional fees. A solicitor to review the franchise agreement and any lease, and an accountant to check the numbers.
- Working capital. The cash to pay wages, rent, suppliers and yourself until the business pays its own way. This is the cost new franchisees underestimate most. Our guide to working capital explains how to work it out.
- A contingency. A buffer for delays and overruns. Fit-outs rarely finish early.
Don't forget the ongoing fees. Most franchisors charge a management service fee, often a percentage of your turnover, and many add a marketing levy. Because these are usually charged on sales rather than profit, they're due even in a month when you make a loss. Build them into your forecasts from day one.
How lenders view franchises
From a lender's point of view, a new franchise isn't quite a start-up. The brand has a trading history, the franchisor provides training and systems, and there's usually evidence of how other outlets have performed. That gives lenders more to go on than they'd have for an untested idea.
Some banks have dedicated franchise teams, and some keep their own list of franchise brands they've assessed and are comfortable lending to, sometimes on agreed terms. Membership of the British Franchise Association, the industry's trade body, is one of the things lenders may look at, although plenty of sound franchises aren't members and membership isn't a guarantee.
What lenders generally like to see in the brand:
- A track record: several years of trading, with a number of outlets
- Franchisees who succeed: low failure rates and outlets that renew
- A franchisor in good financial health
- Realistic projections, backed by real figures from existing outlets
A new or small franchise brand with only a handful of outlets will be judged more like an independent start-up. That doesn't rule it out, but expect lenders to ask for more of your own money or extra security.
How much of your own money you'll need
Expect to put in a significant share of the total yourself. The exact amount varies by lender, by brand and by your circumstances, and some lenders will accept a lower share for an established franchise than they would for an independent start-up.
Your contribution matters for two reasons. It reduces how much you need to borrow, and it shows the lender you have something to lose. Lenders usually want to know where your contribution comes from. Many won't count money that is itself borrowed, so savings, redundancy money or a gift from family are viewed more favourably than a credit card or personal loan.
If you're short, there are options: a smaller or lower-cost franchise, a resale (buying an existing franchised outlet, see business acquisition finance), or a business partner. The government-backed Start Up Loans scheme lends to individuals starting a business, and franchisees can be eligible. Our guide to startup business loans covers it, and you can check current terms on GOV.UK.
The main types of franchise finance
Most franchise funding is a combination:
| What it pays for | How it works | Watch for | |
|---|---|---|---|
| Business loan | Franchise fee, working capital, fit-out the lender won't fund separately | A lump sum repaid monthly, often over a few years | Personal guarantees and the loan term |
| Asset finance | Equipment, vehicles, some fit-out | Hire purchase or leasing, secured on the asset | Soft assets like shopfitting are harder to fund |
| Overdraft or revolving credit | Short-term swings in cash once you're trading | Borrow and repay as you need | Usually needs a track record first |
| Franchisor support | Sometimes a deferred fee or staged payments | Agreed with the franchisor | Read the terms as carefully as a loan |
Asset finance is worth separating out. Vehicles and equipment that hold their value can usually be funded on hire purchase or leasing, secured on the asset itself. That keeps your loan smaller and spreads the cost over the asset's working life. Shopfitting and signage have little resale value, so they usually go into the main loan instead.
The loan term should fit inside your franchise term. Lenders generally want the loan repaid before your franchise agreement ends, so a five-year agreement limits how long you can borrow over.
Personal guarantees
If you trade as a limited company, expect the lender to ask you to guarantee the loan personally. That means that if the company can't repay, the lender can come to you. As a sole trader or partner, you're personally responsible for business debts anyway.
Lending of £25,000 or less to sole traders and small partnerships is regulated by the FCA. Lending to limited companies and LLPs generally isn't, so you have fewer statutory protections. Bear in mind that the premises lease may also ask for a personal guarantee, which is a separate commitment that can outlast the franchise if things go wrong.
What lenders will ask for
A franchise application is a start-up application with extra paperwork. Expect to provide:
- The franchise agreement, or the draft you've been offered
- The franchisor's information pack, including its projections for a typical outlet
- Your own business plan and cash flow forecast, for your location and your costs
- Evidence of your experience: your CV, with any management, sales or sector experience
- A statement of your personal assets and liabilities, and proof of your contribution
- Premises details, including the lease terms if you're taking a site
Don't simply copy the franchisor's projections. Lenders will often test them against your own figures and assume things take longer than the brochure suggests. A plan that shows what happens if sales come in lower or the opening is delayed carries more weight than an optimistic one.
An illustration, not a quote. Say you're opening a franchised outlet with a total budget of £150,000:
- Franchise fee: £25,000
- Fit-out and kit, including a van: £70,000
- Working capital for the first months: £40,000
- Contingency: £15,000
You put in £45,000 from savings, 30% of the total. An asset finance provider funds £35,000 of equipment and the van on hire purchase, secured on those assets. A business loan covers the remaining £70,000, repaid over five years against a ten-year franchise agreement, with a personal guarantee from you as director. That's £45,000 + £35,000 + £70,000 = £150,000. VAT on the fee and kit comes on top, so plan for that cash until you reclaim it.
Checks before you sign
Once you've signed a franchise agreement, it's hard and often expensive to get out. The UK has no specific franchise law requiring franchisors to disclose information before you sign, so your own checks matter. Before you commit:
- The length of the agreement and renewal. How long does it run, and what do you have to do to renew? Some agreements require a renewal fee or a refit at your cost.
- The territory. Is it exclusive, and how is it defined?
- Every fee, including management fees, marketing levies, and charges for training, technology or supplies you must buy from the franchisor.
- Leaving. What happens if you want to sell, and does the franchisor have to approve the buyer? What restrictions apply after you leave, such as not competing in the area?
- Termination. On what grounds can the franchisor end the agreement?
- The franchisor itself. Check its accounts at Companies House and talk to existing and former franchisees, not just the ones the franchisor suggests.
Take independent advice from a solicitor who knows franchising, and ask an accountant to review the projections. Lenders take comfort from both, and they may find things you'd miss.
Common mistakes to avoid
- Budgeting for the fee and little else. Fit-out, working capital and a contingency usually cost far more than the fee.
- Treating the franchisor's figures as your forecast. Every location is different. Build your own.
- Running out of cash before break-even. New outlets take time to build up sales. Too little working capital is a common reason new businesses struggle.
- Borrowing longer than the franchise term. Make sure the loan will be paid off before the agreement could end.
- Signing without independent advice. A franchise agreement is a long, one-sided contract by design. Know what you're agreeing to.
- Forgetting the ongoing fees. They come off your turnover every month, whether or not you're making a profit.
Questions people ask
Can I get a loan to buy a franchise?
Yes. Many UK lenders offer loans to fund a franchise, and some banks have specialist franchise teams. You'll usually need to put in some of your own money, show a business plan and, for a limited company, give a personal guarantee.
How much of my own money do I need for a franchise?
It varies by lender, brand and your circumstances, but expect to fund a significant share of the total start-up cost yourself. Lenders may accept a lower share for an established franchise than for an independent start-up. Most want to see that your contribution isn't itself borrowed.
Is it easier to get finance for a franchise than a new business?
Often, yes, because lenders can see how the brand's other outlets have performed and the franchisor provides training and systems. A well-established brand helps most. A young franchise with few outlets is usually assessed more like an independent start-up.
Can I use asset finance for a franchise?
Yes, for vehicles and equipment that hold their value. Hire purchase or leasing spreads the cost and is secured on the asset, which keeps your main loan smaller. Shopfitting and signage are harder to fund this way because they have little resale value.
What should I check before signing a franchise agreement?
Check the length of the agreement and the renewal terms, every ongoing fee, the territory, the rules on selling and leaving, and the grounds for termination. Speak to existing and former franchisees, and take advice from a solicitor experienced in franchising before you sign.
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This guide is general information, not financial advice. Rates, rules and lender criteria change, so check the details with your broker or lender before you sign anything. Lending Lenny is not a lender.