Many individuals have aspired to operate a business at some point, but deciding what products or services to sell may be tough. Franchises are an excellent option since they are already branded, so most customers are familiar with the franchise, and the product or service has been proven to match customer demand.
Many folks do not have the necessary cash lying around. So I've compiled a list of the top six funding options for getting the funds you'll need to get your franchise aspirations off to a successful start.
1. Franchisor Financing Options
Many do not think to ask the franchisor about financing and loan possibilities, maybe because they are afraid of setting a negative example by telling the franchisor that they need to borrow money.
Franchisors will know what type of financing has worked for their franchisees. Therefore, they can offer alternative options for franchisees like in-house financing to fill gaps where more traditional financing isn't available.
Many franchisors provide some type of loan financing. Many others may also provide no-interest loans, balloon payments, fund some of the expenditures themselves, or offer financing solutions for leasing equipment and operational costs.
2. Conventional Banks and Credit Unions
The primary benefit of approaching a bank or credit union for financing is that they will recognize the advantages of dealing with an established brand rather than an unknown start-up business.
To have a chance at this option, you'll need to get your credit in shape and have a detailed business plan in place. So get all of your financial documents in order. Banks will also look more kindly on you if you can invest some of your own money into the deal, perhaps 20%.
3. Loans for Small Businesses
In most circumstances, franchisees can get SBA loans if certain conditions are satisfied. For example, SBA loans require lower down payments and have longer payback terms than traditional bank loans, making them suitable for entrepreneurs just starting out in franchising.
Going through the SBA might provide you with additional financial support and lessen the risks that the lenders must take on with your business.
4. Home Equity
Using your property as collateral has been a popular financing method for franchise enterprises. To qualify for an equity loan, you must demonstrate that your house has retained or increased in value.
Take the time to sit down and calculate how much money you will need. You don't want to put yourself in a financial position where you can't repay the loan and lose your home.
5. Retirement Plans
Many people are unaware that you may invest up to 100 percent of your retirement funds in a franchise without paying taxes, penalties, or taking out a loan under a program known as Rollovers as Business Start-Up (ROBS). Your retirement funds can also be merged with your spouse, partner, or traditional business financing.
6. Stock Assets
Don't forget about that penny stock you bought on a whim years ago and is now paying you back generously. Stocks, bonds, and mutual funds can help you finance the franchise or contribute to a loan granted by a lender.
If you want to go into the franchising industry, the expense of getting started should not be a concern because there are several ways of gaining the funds you need to get started.
Are you interested in learning more about financing your franchise opportunity? Please schedule a call here.