Opening a franchise of an existing business is an excellent option for anyone who wants the independence that comes with being an entrepreneur but still wants the support that comes with being part of a larger company. These are some of the best resources to finance your franchise.
Companies that offer direct financing to their franchisees are the most helpful resource available to franchisees. Franchisor companies can recommend lenders with the most favorable terms and sometimes provide direct loans to franchisees. Franchisor companies can also advise about allocating loan dollars to ensure that franchisees get the most value from their loan dollars.
Friends and Family
Loans and gifts from friends and family provide a cost-effective and straightforward way to fund a new franchise. Loans from these sources rarely include interest, and when they do, it tends to be minimal. Gifts comprise the most efficient financing option and come with no financial risk to franchisees.
The Small Business Association
SBA loans involve a lengthy application process. Still, they come with low-interest rates and extended repayment options because they are guaranteed by the federal government, making them less risky for lending organizations. The SBA promotes new businesses, including franchises, and has other resources to help them succeed.
When you don’t qualify for other loans, independent alternative lending companies could provide financing solutions. On the plus side, these lenders do not require lengthy applications and can provide funds quickly; however, these loans tend to come with high costs. Interest rates from alternative lenders tend to be higher than those from other sources, and loan repayments are due sooner than different loan types.
This financing option is ideal for anyone who has poor credit or can not qualify for other funding methods. It relies upon raising small amounts of money from many people to achieve a financial goal. Crowdfunding requires considerable planning to create an effective marketing campaign to inspire investors. In addition to presenting a business model that speaks to a network of potential online investors, franchisees must also develop ways to reward investors for their contributions.
Commercial bank loans are an obvious choice for funding a franchise, though they require franchisees to create viable business plans for their banks’ review and undergo credit history scrutiny. Franchisees with problematic or insufficient credit histories usually do not qualify or may receive unfavorable terms.
Franchise financing can also come from a combination of sources depending on your needs and circumstances.