Franchising is a very common way for entrepreneurs to get started. It provides them all of the tools, training, and behind-the-scenes peek at owning and running a business while providing a safety net from complete failure. However, no matter how much of a good investment it may be, the franchisee still has to pay the start up costs associated with opening the business.
Here are the most common ways franchisees fund their new business.
Believe it or not, franchisees are more readily approved than any other type of business venture. Banks favor franchises because the success of the business depends on the reputation of an already successful entity so they are a lot more confident that they’re receive their money back. Traditional lenders are still going to check your personal credit history and may even ask or require collateral.
SBA loans are also available through traditional lenders and although they come with a lot more restrictions than normal commercial loans, they have the lowest interest rates and most favorable repayment terms.
Many times, the franchisor will either offer financing themselves or through a lender to help franchisees raise capital. Some franchisors will even waive the franchising fee if you use their lender. Financing through the franchisor directly guarantees that you’re working with someone who understands your business and unique situation. They often offer additional bonuses and incentives to finance through them.
If the franchisor has lending options it will be indicated on their website; however, be sure to fully read the disclosure agreement and compare terms to make sure you’re making the best financial decision for you.
There are several alternative (not a bank) options for funding your franchise. Factoring, leveraging invoices for capital, is a very popular option. Crowdfunding is also a popular option. Short-term loans are also an option even though they may come with high-interest rates and undesirable terms.
Whoever you choose to partner with make sure they have a good reputation with experience in funding franchises. This will be crucial throughout the development stage of your business.
For more information on how to obtain financing for your franchise, contract 360 Commercial Capital today.