What Banks Look For When Funding a Franchise
When considering franchise finance, banks typically look at your personal financial position, the amount you can invest yourself, your business plan, your experience and the strength of the franchise opportunity. If you’re buying an established franchise, they may also assess the existing business’s financial performance.
Banks want to understand whether the investment is affordable, whether the business can support the proposed borrowing and whether you have the skills and financial commitment to make the opportunity work.
Every lender and franchise opportunity is different, so there is no single set of criteria that guarantees finance will be approved.
If you’re still exploring how franchise funding works, read more about how to finance a franchise with limited capital.
What do banks look for when considering franchise finance?
A bank will usually consider both you as the prospective franchise owner and the business opportunity itself.
This may include:
- Your personal financial position
- How much capital you can contribute
- Your credit history
- Your professional and management experience
- The total investment required
- The strength of the franchise model
- Your business plan and financial forecasts
- The performance of the business being acquired
- Whether the proposed borrowing is affordable
The aim is to build a complete picture of the investment rather than make a decision based on one figure alone.
How much of your own money will a bank expect you to invest?
There is no single amount or percentage of personal investment that applies to every franchise loan.
The contribution required can depend on the lender, the franchise opportunity, the amount being borrowed and your individual financial circumstances.
Banks may want to see that you are committing some of your own capital to the investment, while also ensuring you retain enough financial headroom for working capital and other costs.
This is why it’s important to understand the full investment required rather than focusing only on the initial franchise fee or purchase price.
Learn more about how much it costs to start a home care franchise in the UK.
Does your experience matter when applying for franchise finance?
Yes. Banks may consider your professional experience and whether you have the skills required to lead the business successfully.
That doesn’t necessarily mean you need previous experience in the same sector.
Transferable experience may include:
- Leadership
- People management
- Financial management
- Operations
- Sales and business development
- Recruitment
- Strategic planning
For a home care franchise, strong leadership and commercial skills can be particularly important because the franchise owner’s role is primarily focused on running and growing the business rather than personally delivering care.
If you’re considering a move into the sector, find out more about running a care franchise without a care background.
Why does the franchise itself matter to a lender?
Banks will usually want to understand the franchise model as well as the individual applying for finance.
An established franchise may be able to provide information about its business model, operating systems, training and ongoing franchisee support.
Lenders may consider factors such as:
- How established the franchise is
- The business model
- The support available to franchise owners
- The sector in which it operates
- Historical business information where available
No franchise model removes the risks associated with business ownership, but having established systems and ongoing support can give lenders additional information when assessing an application.
Learn more about the support Home Instead provides franchise owners.
What will banks look for in your business plan?
A bank will typically expect your business plan to show how you intend to operate, finance and grow the business.
This may include:
- Your objectives for the business
- Information about the local market
- Your experience and management approach
- Revenue and cost forecasts
- Cash flow projections
- Funding requirements
- Plans for recruitment and growth
Financial forecasts should be realistic and supported by clear assumptions. Lenders may want to understand what those assumptions are based on and how the business would manage if performance differed from the forecast.
Understanding what makes a home care franchise profitable can help prospective owners identify the operational factors that influence long-term business performance.
Does buying an established franchise make a difference?
Buying an established franchise can give a lender historical business information to assess alongside your plans for future ownership.
At Home Instead, every UK territory is mapped and trading, so new franchise owners enter the network through established resale businesses.
Depending on the individual opportunity, information may be available about:
- Historical revenue
- Financial performance
- Existing clients
- Current teams
- Operating costs
- Previous business growth
This gives prospective franchisees and potential lenders more information about the existing business than would be available when launching an entirely new operation.
However, historical performance does not guarantee future results. Banks will still want to understand your plans for leading, financing and developing the business.
Explore current Home Instead franchise opportunities.
How can you prepare before speaking to a bank?
Being prepared can help you have a more productive conversation with a potential lender.
Before approaching a bank, it can be useful to understand:
- How much you can invest personally
- How much you may need to borrow
- The total cost of the opportunity
- Your working capital requirements
- Your personal financial position
- The financial information available for the business
- Your plans for running and growing it
You should also be ready to explain why you want to become a franchise owner and how your previous experience will transfer into the role.
It’s worth asking lenders what information they require early in the process, as requirements can vary.
Preparing for franchise finance
Securing finance is about more than finding a bank willing to lend. The lender needs to understand you, the franchise opportunity and how the proposed borrowing fits into a realistic financial plan.
Preparing your finances, understanding the business and being able to clearly explain your plans can put you in a stronger position when you begin conversations with lenders.
Home Instead’s franchise development team can help prospective owners understand the investment requirements, available opportunities and financial considerations involved as part of the franchise journey.
If you’re considering Home Instead franchise ownership and want to explore the next steps, complete our enquiry form and a member of the franchise development team will be in touch.