Franchise Financing

What’s The Best Way to Fund Your Franchise? There’s much to be said for becoming a franchise owner. In some ways it’s really the best of two worlds; you’re an independent, largely autonomous entrepreneur, but with all the infrastructure and brand recognition value of a big corporation at your disposal.

Once you have decided that franchising is right for you, determining how you will finance your new venture is the next step. The average amount required to launch a new franchise is approximately $350K. Finding a lender who will willing to lend you enough money for a successful opening is possible, but can also be an intense, demanding process, especially if you have no successful businesses record to fall back on.

There are a variety of approaches available take to secure commercial loans and financing for franchise operations. While there are many considerations to take into account, your timeline, risk tolerance, and credit history will ultimately determine the best route for you to take.

Franchisor-based Financing

A major benefit of owning a franchise is that the franchisor supplies you with everything you need to get started, making the process much easier. This often includes turn-key financing. However, it’s important to explore to weigh the simplicity and downsides to this type of financing.

Pros

Simple, one-stop shop approach
Discounts for veterans, minorities, women
Financial incentives such as discounts, deferred fees, marketing support and equipment buy-back.
Financial incentives such as discounts, deferred fees, marketing support and equipment buy-back.

Cons

Borrowing more than you can afford.
Higher interest rates
Less flexibility in terms of how much you can borrow, the length of your repayment term, and other loan conditions.
Lack of independence from lender.

Considering Franchise Financing? Ask Them:

What types of financing are offered directly from franchisor?

What start-up incentives and discounts are available?

Do they offer any discounts for veterans, minorities, or women?

Third Party Financing Options for Franchisees

Bank Financing

A Good Option If You Have:

Good credit, a reasonable down-payment, and a history of successful business ventures.

Considerations:

You’ll need a solid business plan and a decent credit score. The higher your score, the better the terms and interest rate you’ll qualify for.

Home Equity Loans

A Good Option If You Have:

A home that has retained its value or has a significant amount of equity built up.

Considerations

Putting your home up as collateral has risks that you must be comfortable with.

Business Partners or Investors

A Good Option If You Have:

The skills, drive, and talent to make your franchise a rousing success, but lack the money to get a business up and running.

Considerations:

You’ll have to give up a portion of ownership and/or profits to secure the funds needed to purchase a franchise.

Government Backed Loans

A Good Option If You Have:

Good credit, a reasonable down-payment, and a history of successful business ventures.

Considerations:

Of all the financial products on the market, a government-backed loan is one of the most desirable options for aspiring franchisees. These are small business loans are provided by conventional lenders, with a significant portion of the amount guaranteed by the federal government.