Franchising: how can you increase your personal contribution?

29 November 2022

The financing of a franchise is governed by immutable rules. The only way to gain access to the sacrosanct bank loan is to make a personal contribution of sufficient equity. Here are 5 ways to boost your initial investment.


“I contributed 18,000 euros of personal funds from my savings. This enabled me to obtain a bank loan of 60,000 euros,” explains Nathalie Bodard. This franchisee of the La main Tendue personal services company, based in Retiers, Brittany, since September 2022, fits right in with the statistics for franchise financing. On average, a personal contribution of between 30% and 35% of the total investment is required. It can even be as high as 50% in the service sector, which is considered riskier! The equity capital contributed by the entrepreneur represents the sustainable resources that belong directly or indirectly to the company. The higher they are, the more confidence the company inspires not only from franchisors, but also from banks and financial partners who may be able to put up collateral against it.

With investments ranging from €50,000 to €200,000 in franchising, and as much as €500,000 in the restaurant, retail and hotel sectors, it’s easy to imagine the huge sums of money that franchisees need to raise to get started. “110,000 for a mature franchise. It’s a little lower for a younger network”, says a banker specializing in the professional market. These sums, far from being within everyone’s reach, can fortunately be raised by activating various levers.

A helping hand from friends

Love Money, money lent by close friends and family, can raise a few thousand euros to launch a project. However, this helping hand needs to be supervised between the various protagonists, as money and friendship rarely go hand in hand. Acknowledgement of debts, gifts… it’s essential to clarify the situation in writing to avoid misunderstandings.

Honor loans from business start-up support networks

The surest, and above all most effective, way is to obtain an “honorary loan” to boost your initial equity. These zero-interest loans are granted by business start-up support networks such as Initiative France, France Active and Réseau Entreprendre, after selection on the basis of a business file. Franchisees are not the favorite target of distributor organizations, but it’s worth applying, especially if you’re starting out with a young network or if the concept has a social or ecological dimension. The amounts of the honorary loans – from 5,000 to 15,000 euros – act as leverage with banks. They also have the advantage of being mobilized by two franchisees associated in the same project, since these loans are granted to the project owner himself. Please note, however, that honor loans are loans like any other. Don’t forget to include the repayment amount in your business plan.

Subsidies

Another possibility is subsidies, which can significantly boost equity capital. It’s impossible to list them all, as they vary from region to region and are geared to different projects. The best way to find out about them is to contact a business start-up organization or the CCI. These structures normally have detailed knowledge of regional aid.

Capital assistance from Pôle Emploi

Franchisees who are unemployed and registered with Pôle Emploi can request payment of their unemployment benefits in the form of a capital contribution to the company (they can also receive unemployment benefits). The amount of this assistance – Arce – corresponds to a “capital of rights”, equal to 45% of remaining unemployment benefit entitlements, paid in two instalments. If the project offers the prospect of rapid growth, the Arce option is an attractive one. Franchisees can pay themselves a salary while injecting capital into their business. On the other hand, if the business is expected to develop more slowly, it’s better to opt for unemployment benefits. This allows us to maintain a secure income to live on.

The franchisor’s involvement

Franchisees lacking in capital can ask their franchisors for a helping hand. There are two possible scenarios: obtaining a loan from the franchisor (portage) or giving the franchisor a stake in the business (participative franchising) in exchange for an equity investment. These practices are common in the foodservice sector, where investments are high. In both cases, we need to be vigilant, as these financial tools are little used and often poorly understood. Repayment conditions, exit or redemption clauses, the timetable for operations… must be written down in black and white. These safeguards are essential, but they enable franchisees who do not have a well-stocked bank account to enter the franchise market.

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