Franchise Finance

If you’re looking to expand your franchise business or you want to buy into a new franchise, a franchise loan can give you the working capital you need to pursue your franchising dream.

  • Compare a wide range of lenders and rates
  • Check your eligibility in minutes
  • Find out how much you could borrow
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Written by Richard Wilcock | Reviewed by Jamie Moorcroft | Updated: April 22, 2024

Can I get a business loan for a franchise?

Whether you’re eligible for a franchise business loan will depend on the type of franchise you’re buying into and how much you need to borrow. The lender will look at how established the franchise chain that you’re buying into (to determine risk), your credit history, and, perhaps, your business plan.

Each lender's criteria varies, so it’s important to research and compare your franchise loan options before settling on one.

What can franchise finance be used for?

You can use a franchise loan for pretty much anything to do with your new business, including:

  • Cover stock expenses
  • Buy new equipment
  • Pay franchise fees
  • Staff wages
  • Refurbishment costs

Buying a franchise can be expensive, so accessing finance like this can ease your financial worries and help you adequately manage cash flow throughout the entire franchising journey.

Are franchise loans secured?

Franchise loans can be secured or unsecured. Which you choose depends on your personal circumstances. If you don’t have collateral to secure the loan, your only option is to apply for an unsecured loan.

Unsecured franchise loans can mean you have the funds in your bank account quicker, but you can expect to pay higher interest rates with shorter repayment periods.

Secured franchise loans can be a great option for those with bad credit. If you’re happy to risk your collateral, you can enjoy lower interest rates, higher loan amounts and longer repayment periods.

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What are the different types of franchise finance available?

We’re talking you through five popular franchise loan options below. Which one you choose depends on your circumstances, what you’re looking for and the lender’s eligibility criteria.

Pub Franchise Business Loans

The pub market is thriving, so if your new franchise is a pub, a pub business loan is tailored explicitly for businesses just like yours to help you capitalise on this opportunity. For example, use the finance to give your pub’s interior or exterior a much-needed facelift or pay for some new stock.

Hotel Franchise Business Loans

Specifically designed for hoteliers to support the growth of your hospitality business, hotel finance can assist with everything from purchasing a new hotel to refurbishing your existing property, enhancing the customer experience or taking on new staff. These loans are generally paid as a lump sum and then repaid with interest and any fees/charges on a monthly basis.

Retail Franchise Business Loans

Running a successful retail business can be expensive, particularly as a new franchisee. Getting a retail business loan can alleviate a lot of worries over expenses such as purchasing new stock, covering quieter seasons, and refurbishments. The finance can be in your account quickly and repaid over a long period.

Not sure which option is best for your business? No worries, we’re here to help you find the right finance for your needs. See your franchise business loan options here.
Franchise Loans

How can I get a business loan to open a franchise?

1. Understand your costs. Before applying for franchise finance, you must understand the costs you will incur throughout the purchasing journey or the costs associated with expanding your franchise. You’ll need to ensure you can put up 30% of the required funding, so do your sums and see if this is feasible. See here for further help on managing your finances.

2. Create a business plan. Some lenders will want to see a comprehensive business plan for your new franchise business. This helps them understand the industry, any challenges you might face, and, therefore, the risks associated with your chosen franchise industry.

3. Compare franchise loan lenders. Plenty of lenders offer franchise finance to UK business owners, so it’s important to compare your options to ensure you settle on the best finance deal for your business.

Use our free loan comparison tool to quickly compare your options all in one place.

Can I get a franchise loan with bad credit?

Yes, you can apply for franchise finance with bad credit. Although your options might be a little more limited, there are plenty of franchise financing lenders willing to consider applications from all kinds of business owners.

Getting franchise finance with bad credit might mean:

  • To lessen the risk, the lender might expect you to invest more than the typical 30% of funding required.
  • They might want to see a more detailed business plan that outlines exactly what steps you’ll take to make this business successful.
  • The interest rates could be higher for applicants with poor credit
  • The lender might insist you secure the loan with collateral (i.e. property, vehicles or other high-value assets)
Franchise Finance for UK Businesses
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How much does it cost to buy a franchise?

According to Point Franchise, the average startup cost for buying a franchise in the UK is £42,200; this includes everything from stock and equipment to franchise fees.

Most lenders will lend the franchisee 70% of the funding, which means you have to put up 30% to secure the finance. So, let’s say it costs £42,200 to buy into the franchise, you’d need to put up £12,660 and borrow £29,540 from the lender.

How much a franchise costs will entirely depend on what franchise you buy into. Smaller franchises cost less, while brands with household names will cost substantially more.

Before applying for franchise finance

  • Do your research on the franchise you’re considering buying into. Understand its business model and what support you will get as a franchisee. Is the franchise's financial health stable? And is its brand reputation strong?
  • Make sure you can afford to invest in the franchise. Lenders will expect you to part with at least 30% of the finances you require, so that might mean dipping into personal savings.
  • Make sure you can comfortably afford loan repayments. You can easily find yourself in a cycle of debt, and although lenders should lend responsibly, it’s up to you to ensure you can afford monthly repayments plus interest.

Ready to start your franchisee journey? Find and compare franchise loan lenders.

About the author

Richard Wilcock
Written by Richard Wilcock

Money Writer, Director and Co-Founder

Richard is one of the Co-Founders here at Capalona and has over twenty years of experience in the marketing industry, specialising in the finance sector.

Updated: April 22, 2024
Published: June 06, 2022
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