How to finance a franchise with a Start Up Loan, and what the franchisor will ask
How to finance a franchise: add up the full cost, check what a Start Up Loan can cover, and know what the franchisor and lender will ask.
Reading time5 min read
CategoryBusiness guides
Written byThe bizbritain team
Wondering how to finance a franchise? Most first-time franchisees use some savings and a loan. A Start Up Loan can be part of it. The scheme accepts franchises, and an eligible founder can borrow £500 to £25,000. A bigger franchise usually needs a larger business loan as well.
This guide covers what a franchise costs up front, what a Start Up Loan can pay for, and what the franchisor and the lender will check.
Section 01
How to finance a franchise: add up the full cost first
The franchise fee is only the first cost. Franchise fees vary widely. According to guidance published by the British Business Bank, they range from about £5,000 to £300,000 for a full-service restaurant in a prime location.
Your franchisor should give you an estimate of the total. Check it covers these four things.
The franchise fee
This is a one-off payment for the right to use the brand and its way of working. It usually includes training and help to launch.
Fit-out, equipment and stock
A franchise run from home needs very little. A food outlet needs furniture, fixtures, equipment and signs.
Working capital
This is the money that keeps the business running until it makes a profit. The same guidance says most franchises make little profit in their first year.
Ongoing fees
Most franchisors charge a royalty or management fee, often a share of your sales. Some also ask for a marketing contribution. These come out of your monthly cash flow.
Working capital is the cost new franchisees most often underestimate. Ask the franchisor how much existing franchisees needed before they broke even.
Section 02
Can you get a loan to buy a franchise?
Yes. The Start Up Loans scheme lists franchise businesses as eligible. You get the same package as any other applicant, including 12 months of free mentoring.
You need to meet the usual conditions.
You are 18 or over and a current UK resident with the right to work in the UK.
The business is based in the UK.
The business is new, or has been trading for up to 60 months.
You pass the credit checks and can afford to repay the loan.
Each founder can borrow £500 to £25,000. If two or more partners each apply, the business can receive up to £100,000 in total. The loan is personal, so you are personally liable for the repayments.
A Start Up Loan cannot be used to repay debt or to pay for training or education programmes. A franchise fee is not on that list. If the franchisor bills a training course separately, check that line with your adviser before you apply.
Buying a franchise that is already trading also counts. You can apply even if the business is older than 60 months, as long as you have not owned it for more than 60 months yourself. You will need its accounts for the application.
If your costs fit inside those limits, a Start Up Loan can be the simplest way in.
Section 03
What the franchisor and the lender will check
The franchisor has to approve you before you can buy. Expect questions about your experience, how much of your own money you can put in, and the territory you want. On a resale, the franchisor usually has to approve the transfer, and there may be a transfer fee.
For a Start Up Loan, the assessment looks at your business plan, your cash flow forecast and your personal survival budget. There is also a credit check.
A franchise plan can draw on the franchisor's own figures. Ask how their forecasts were worked out. They should be based on the real trading of existing franchisees, not on hopes.
Talk to two or three franchisees yourself. Ask what they spent in year one and how long it took to pay themselves.
Section 04
When £25,000 is not enough
Many franchises cost more than one founder can borrow under the scheme. Then you have three options.
Bring in a business partner who can also apply, up to the £100,000 business limit.
Combine a Start Up Loan with your own savings and a separate business loan.
Choose a lower-cost franchise, such as one you can run from home or a van.
For a bigger business loan, lenders usually want you to put in some of your own money. Our franchise finance page explains the routes for starting, buying or adding a franchise unit.
Section 05
How we help you apply
As a Start Up Loans Business Support Partner, we help you prepare the application. myplan builds your business plan, personal survival budget and 12-month cash flow forecast by asking plain questions. The workbook takes around 30 minutes and it is free for every bizbritain applicant.
myplan shortens the paperwork. It does not skip the assessment. Most applicants are approved within one to two weeks of submitting a finished application, and the fastest can be approved in as little as a week. Timing also depends on any further information requested and the finance partner's final checks.
Our eligibility check takes 60 seconds and involves no credit search. The formal application does include a credit check, which is a hard search.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
Got a question the guide didn’t answer? Talk to an advisor.
Starting your first franchise, buying an established franchise or adding another location? If you’ve read the guide, our advisors can help you understand the funding options and prepare your next step.