When you are starting a business, being a franchisee can have some benefits, but it can also pose some unique challenges. Some consider it a fast track to entrepreneurship, but it’s worth noting that franchising is still a serious investment that should be taken as seriously as any other business that you invest in.
There are actually a few funding options available for someone who wants to invest in franchising. However, choosing the right option for you is important to ensure that you are able to get your franchise up and running.
The following are some of the different types of funding that’s available for franchising and how you will know which options will work best for your future franchising endeavors:
Financing From Franchisers: Many franchisers will offer you funding to start your own location of their business. You are essentially helping a larger business expand their already-existing company into a new location. Many “parent” companies will offer loans to help their newer franchises to get up and off the ground. This is your best option if you want financing for your business and should be the first place your look if you are franchising.
Loans from Family & Friends: Many times family and friends will be able to assist you in starting up your franchising. Paying back family and friends might also be worthwhile if the interest rate is low or nonexistent, which may not be the story with most other financing options.
Commercial Bank Loans: Commercial bank loans are the typical way that most new businesses obtain funding. You will need better credit to get a loan from a commercial bank as the lender is risking their money to invest in a new franchise. If you don’t have good credit, this option is less likely to work for you. Be wary that interest rates not too high to make it worth the investment.
SBA Loans: SBA loans are great for businesses who don’t qualify for a traditional loan. The most recommended type of SBA loan is a 7a loan as there are generally lower interest rates on these loans and they are cheaper to pay back in the future.
Alternative Lending Options: The aforementioned recommendations are the most common forms of lending available for franchises. Other options are available that may work for certain franchisers and not others. You want to look at the lowest interest costs and monthly payment plans for your franchise as most franchises will not have extra cash lying around to make higher payments.
These are a few of the most common funding options available for franchises. You will choose the options that work the best for you.
What Can Franchises Use Funding For?
The funding your franchise receives can cover the following:
Legal fees that lawyers charge to review your franchise agreements
Real estate and building costs for your franchise location
Franchising fees that can cost anywhere from $2,000 to $50,000
Additional costs of running a franchise; day-to-day operations
Having these costs covered can help make starting a franchise a much easier feat when you have assistance with financing.
For more information on how to help fund your franchise, please feel free to contact us for further assistance. We are always here and happy to help!