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Loan Types
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Franchise finance between $100,000 and $200,000
If you're looking to run your own franchise business in the $100,000 to $200,000 range, you'll need finance.
A franchise business is similar to any other start-up business in a lot of ways, particularly from the point of view of a customer or client. But from the point of view of a business owner or franchisee, a franchise business has an entirely different structure to a traditional business.
The franchise business model allows franchisees to utilise the branding, products and business structure already established by the franchisor. Rather than reinventing the wheel, a franchise business structure gives a franchisee a head start to running their own successful business, capitalising on the existing success and brand recognition created by the franchisor.
However, there are potential downsides to a franchise business structure, not least of all being the start-up costs and ongoing royalties that must be paid to the franchisor in return for the use of their existing branding, products and/or services.
In Australia, franchise business arrangements are regulated under the Franchising Code of Conduct. In addition, every franchise relationship must be set down in a franchise agreement, giving both parties the opportunity to fully understand the rights and responsibilities of both sides, and for franchisees to receive independent legal and financial advice before entering into a franchise arrangement.
Compare the following Franchise Finance options between $100,000 and $200,000
Franchises for sale between $100,000 and $200,000
A budget between $100,000 and $200,000 is considered an average or mid-range budget for a franchise in Australia, and will give a franchisee a wide range of choices when it comes to choosing the right franchise.
Before you begin looking for the right franchise for you, keep in mind that a franchise can be purchased in one of two ways. You could start a new franchise and build your business from the ground up, or you could purchase an existing franchise – one that has already been established by someone else – and run it as a going concern. With that distinction in mind, the following franchise businesses may be available to you with a budget between $100,000 and $200,000:
- Aussie, a mortgage brokerage business that has been established for over 25 years and enjoys a good reputation in Australia.
- Bakers Delight, one of the more well-known retail bakeries in the country.
- Baskin-Robbins, a highly recognisable ice creamery and dessert company that has been in existence for more than 70 years.
- iBrow Threads, a newer business idea that has gone from strength to strength, featuring eyebrow threading – an old technique that has enjoyed mainstream popularity in recent years.
- Jamaica Blue, one of the more recognisable coffee shop brands in Australia.
- Kwik Kopy, a printing, graphic design and marketing services franchise that specialises in catering to the needs of small to medium-sized businesses.
- The Cheesecake Shop, a destination cheesecake and special occasion dessert company that has twice been recognised as Australia's best franchise system.
In the $100,000 to $200,000 price range, you will have a choice of franchises that depend on retail premises, as well as mobile franchises which tend to be placed at a lower price point.
Understanding the costs of a franchise
Up-front franchise fees, business establishment fees, and ongoing royalties and other expenses
The franchising system involves a sometimes complex set of fees and ongoing payments. Without a full understanding of the costs of establishing your new franchise business and continuing to run it for the length of the franchise agreement, you could become overburdened with costs that you may not have budgeted for.
Be aware of the following costs of franchising:
- Up-front franchise fee. When you first enter into a franchise agreement with the franchisor, you will be expected to pay an up-front fee which covers your use of the franchisor's branding, products and services, overall marketing efforts, and brand loyalty and recognition of the length of the franchise agreement. It is possible to get approved for finance to cover a large portion of the up-front franchise fee.
- Up-front establishment expenses. If opening a new franchise, keep in mind that you will have up-front expenses to pay to set up a business, including shop fit-out and opening stock levels.
- Ongoing royalties. In addition to the up-front franchise fee, you will also be expected to pay ongoing royalties to the franchisor. This is most commonly calculated as a percentage of turnover, but can also be a fixed monthly sum.
- Ongoing expenses. Similar to any other business structure, your business will incur ongoing expenses completely separate to your ongoing royalty payments. These include rent, wages, utilities and other expenses related to your business.
Budgeting for working capital
One of the most common mistakes that new business owners make, whether running a franchise or non-franchise business, is under-allowing for working capital. As mentioned above, your business will incur ongoing expenses similar to a non-franchise business, as well as ongoing royalty payments that must be made to the franchisor in exchange for the continued use of their brand name, branding and the business's reputation.
After making a large financial outlay to set up the business, many new business owners find themselves strapped for cash and unable to meet the ongoing expenses of the business. In other words, they haven't adequately allowed for working capital.
While it can be difficult to estimate the exact amount of working capital you will need to keep your business afloat, there are many resources you can utilise to give yourself a good idea of where to start. Consider speaking to existing franchisees in the business or industry you are looking to move into, and ask for advice from your accountant or financial advisor.
Most lenders will not allow for working capital in the loan amount, making it all the more important that you understand and properly budget for working capital for your new franchise, particularly in its first year when cash flow will be tight and revenue may be much lower than expected.
Getting approved for franchise finance between $100,000 and $200,000
How to apply for a franchise loan
Most people looking to purchase a franchise in the $100,000 to $200,000 price range will need to apply for finance. When approaching a bank or other lender for finance to start a franchise, it is essential to be completely prepared well in advance, as well as being totally up-front and honest about your financial circumstances.
Consider the following when applying for franchise finance:
- Personal financial information. The lender will want to know the complete details of your current financial situation. This includes your assets and liabilities, tax returns for at least the last two years, and full business financials for any businesses that you currently manage or have an interest in.
- Franchise financial information. The lender will also require in-depth information as to the financial standing of the franchise you're seeking to purchase. If purchasing an existing franchise, you will need to provide full audited financial information regarding the franchise, including profit and loss statements, for at least the last two years. These should be provided to you by the current owner without question.
- Evidence as to serviceability. When a lender is evaluating whether to approve a loan application, the question they are essentially asking themselves is whether they are satisfied that you, the borrower, have the ability to service the ongoing loan repayments. Keeping this question in mind, provide as much information as you can to the lender to show your ability to service the loan.
Be up-front and honest about your current financial situation, your financial history and your current outgoings, and you will be in the best position to be approved for franchise finance between $100,000 and $200,000.
Finance options for franchises between $100,000 and $200,000
What types of franchise finance are available?
When looking for finance to purchase a franchise valued between $100,000 and $200,000, you may have a number of options open to you.
- Business loan. A business loan is the most common way for borrowers to access the funds needed to purchase a new franchise in the $100,000 to $200,000 price range. Business loans can either be secured with an appropriate asset such as residential property, business premises or the business itself, or can be unsecured. Understandably, unsecured business loans tend to attract higher interest rates and less favourable terms than secured business loans. The amount of the loan will generally range between 50% of the loan value for unsecured business loans and up to 70% for secured business loans, or potentially higher for approved franchise systems.
- Interest only business loan. A business loan could be offered with an interest only period, generally no longer than two years. Interest only business loans typically only apply to secured loans, and allow the borrower to make interest only payments for the initial term of the loan, after which the loan will revert to an ordinary business loan. This type of loan arrangement can work out much costlier in the long run, but gives new business owners the opportunity to reduce their loan repayments to the bare minimum during those financially difficult first couple of years of a new business.
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