Do you need to own property to lend from a bank to buy a franchise?

Do you need to own property to lend from a bank to buy a franchise?

A question we get asked frequently from prospective franchisees seeking funding is whether or not
they will have to put their properties at risk when looking to borrow money from a bank. Banks will
refer to this as security and the level when this would be needed will vary from bank to bank.
Typically if you are looking to borrow less than £25,000 banks are happy to lend without security
being taken.

If you are looking to borrow in excess of £25,000 it is likely that the bank will require you to put up
personal assets as security for any loan agreed. This could be in the form of taking a charge against
property with sufficient equity. However, if you don’t have a property available, it doesn’t necessarily
exclude you from lending more than £25,000.

If you have a strong business plan and suitable deposit but don’t have any personal assets to support the lending, then the bank may be able to consider financing your plans using the Government-backed Enterprise Finance Guarantee Scheme. Sometimes referred to as EFG, the scheme is designed to provide entrepreneurs with the security needed to access greater levels of funding, as it would guarantee up to 75% of the amount you borrow from the bank. This scheme may require a slightly larger deposit and does come at a premium, as the government will charge an annual 2% fee for the guarantee. Speak to the bank’s Franchise Department for guidance as to whether you would be eligible for this scheme, as you would need to ensure that you have fully invested your available assets into the business before being eligible. This would include all of your personal savings and investments, along with any available equity in properties that you own. It is also important to remember that you would remain fully liable for the total amount being borrowed, as banks would also take guarantees from you as an individual to cover the full amount being borrowed.

It is essential to thoroughly research the opportunity and fully consider the financial implications
before buying a franchise. You are entering into a long term commitment and need to get the
funding right at the outset. Don’t try to press ahead with insufficient capital, putting unnecessary
pressure on the business from the outset, but don’t borrow more than you can comfortably afford to
repay.