Q&A

Q: Are young people disadvantaged in franchising?

Carl Reader Head of Franchising at Dennis and Turnbull

A: Unfortunately, there are obstacles that might cause difficulty for young entrepreneurs looking to obtain funding for a franchise. Primarily, these will be a lack of personal guarantees and no previous track record in running a business.
With a solid business plan, and demonstration of relevant skills, a potential franchisee should have a stronger case than somebody looking to fund a regular start-up, due to the systems and track record of the franchisor. This however does not address the lack of personal guarantees, and the applicant may be required to find a guarantor to support them in their application for funding. Alternatively, they could apply under the Enterprise Finance Guarantee scheme, which is a fund to facilitate bank lending to SMEs with viable business cases but insufficient security.
There are a variety of grants available to young people, from organisations such as the Prince's Trust and Shell LiveWIRE.

These organisations might also offer young entrepreneurs access to financing if they are declined by the banks. I would also suggest that any potential franchisee consults their nearest Business Link office, as there may be local grants available depending on location.

Cathryn Hayes Head of Franchising at HSBC
A: As part of the assessment for any request for funding, a bank will look at your background and reliability, training and qualifications, financial resources and suitability to run a business. These are the same qualities a franchisor will be looking for to ensure you are a suitable franchisee. This approach is the same for any potential franchisee, no matter what your age.

For an established franchise, most banks will lend up to 70 per cent of the start-up costs, for new franchises the figure will probably be around 50 to 60 per cent. You will therefore need to establish how much money you can invest in the business - what can you afford? Have you got savings? Can your family help?
Grants are available from a variety of sources; Business Link can provide further information.

We also assess the risk of lending to you and decide whether security is required. Property is commonly used but many younger people may have had difficulties getting onto the property ladder or have little equity in their property. The Government's Enterprise Finance Guarantee can be used to help businesses access finance for working capital or starting up if they are unable to obtain bank finance due to a lack of suitable security.

Finance will be available to high quality applicants who can demonstrate they have a good understanding of their chosen franchise model and the financials of their business - regardless of their age.