
Get exclusive money-saving offers and guides
Straight to your inbox
Updated
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
There is no doubt that Australians love their coffee. This Aussie devotion to caffeine is partly down to the satisfying experience of drinking a good coffee and partly due to the social aspect that comes with "cafe culture".
If you're passionate about coffee and would love to share your passion with the world – or with your local area, at least – read on to find out how to obtain finance for a coffee franchise of your own.
Coffee franchises tend to come in two distinct flavours: mobile coffee vans and fixed-location cafes. Understandably, the initial cost for a coffee van differs significantly from that of a full-service cafe.
Example initial costs of a coffee van franchise:
Example initial costs of a cafe franchise:
The majority of franchise arrangements include ongoing royalty and support fees, which can either be calculated as a percentage of your revenue or at a fixed rate.
For example, a Hudsons Coffee franchise will incur an 8% royalty fee on all sales in addition to a 2% marketing contribution fee.
In another example, Xpresso Mobile Cafe operates using a fixed fee structure. For the first three months franchisees pay $50 per week + GST, months four and five incur a $100 fee + GST and month six incurs a $150 fee + GST.
Other costs associated with purchasing a coffee franchise can include:
As with other franchise opportunities, coffee franchisors will never state a guaranteed income or profit level as much of the profitability comes from the hard work and determination of the franchisee.
What has been said about coffee van franchises, however, is that franchisees clock up shorter hours than other small business owners, with the majority working five days a week from 6:30am until 1pm. Franchisees who are willing to extend their working hours until 3pm each day are said to potentially earn an additional $15,000 per annum for their efforts.
Options for purchasing a coffee franchise include:
A franchise loan is very similar to a standard business loan, the major difference being that a franchise loan allows a greater amount to be borrowed against the value of the business than if you are purchasing a non-franchise business. As such, a smaller deposit or a lower amount of equity will be required when applying for a franchise loan as opposed to a regular business loan. Note that the value of the business will be determined by the bank and may not correspond with the agreed purchase price. Franchise loans usually range between 50 and 70% of the franchise cost. The term of the franchise loan is directly related to the term of the franchise agreement, which is generally between five and ten years and therefore shorter than a standard business loan term. The loan amount will cover all aspects of the purchase and initial set-up of the franchise but will not include working capital.
Most major lenders in Australia have a franchise accreditation program, which is a list of franchisors that they perceive to be strong, low-risk business opportunities. While banks update their lists of approved franchises regularly, if you can identify a suitable lender you could potentially borrow up to 70% of the loan amount.
A business loan requires residential property as security and has a standard loan term of 25 to 30 years. With an appropriate residential property as security you can potentially borrow up to 100% of the value of the loan.
It may sound counterintuitive but it can be difficult to obtain finance for a franchise with a low entry fee. Some franchises, particularly those based on the provision of mobile services, like a coffee van, have a lower initial investment, making it difficult for potential franchisees to obtain finance. When it comes to franchise loans with a franchise that is on the lender’s approved list, a minimum initial investment of $250,000 is not uncommon. In this instance, a personal loan may be a better choice.
While most people will need to borrow money to finance a new franchise, consider any savings or other liquid assets you could use rather than going into debt. You could also consider refinancing a residential property mortgage to free up some of your equity to purchase your franchise.
If you have a family member or friend who would be willing to lend you the money required to start up your new franchise, this could be an option to consider. However, ensure that any agreement is drawn up properly and that all parties are clear on the terms, including interest rates and the repayment schedule.
While not available in all types of franchises, some franchisors have recognised that potential franchisees are finding it difficult to obtain finance from banks and other major lenders. Some franchisors may provide other options to frustrated potential franchisees, including direct lending, stepped royalty payments and other schemes. Ensure you received independent legal advice before entering into a franchisor finance agreement.
If you are purchasing an existing coffee franchise, you will need to provide fully audited financial statements of the business for at least the last two years. This will include business bank statements, profit and loss statements, and business tax returns.
For a new franchise, you will need to provide financial information for yourself for at least the past two years. This will include your audited tax returns, payslips if you are an employee, or business financial information if you are self-employed.
You will also need to provide a business plan for the franchise, including projected sales and profits and cash flow forecasts.
In addition, update your CV to ensure that it contains all relevant business management experience along with any experience you have had in similar areas.
Once you have determined that your passion is enough to make you want to bring excellent coffee to the world, you then need to decide whether a coffee van or a fixed-location cafe will be the best franchise for you. Each option has its benefits, though the start-up costs of a coffee van franchise are considerably lower than a cafe.
Pictures: Shutterstock
Looking to purchase new equipment for your business? Find out how you could benefit from a vehicle and equipment loan from St.George. Compare and apply today.
Our guide to finding and buying a van will help you pick the perfect model for your business.
Royal Finance offers a number of different options for financing your business.
Interested in owning a Domino's franchise? Learn about the application process, franchise costs and other criteria for being accepted as a franchisee.
Want to own a pool maintenance business? Compare Poolwerx franchise loans now.
If you're thinking of buying a Subway franchise, find out what you'll need to do here.
Find out how to own and run your own McDonald's franchise, and compare loans now.
A 7-Eleven franchise gives you the chance to run your own business. Compare your finance options now.
If you're looking to buy an F45 gym franchise, compare your finance options here.
If you're interested in buying a Smartline franchise, find out what you need to do and how you can finance it.