Financing Franchises: The Basics
It is not as easy to find franchising now as it was a few years ago, and with the current economic state, it may not be for some time. There are still options available to those who seek out funding to purchase their franchises, however, before doing so, it is absolutely vital to have your finances in order. Once you have taken a long hard look at both your assets and your liabilities, then it is time to seek out that funding. Here, we’ll go into a few examples of how to finance your franchise.
Usually, if you do have decent credit and a bit of collateral to put towards the loan, a conventional loan may still yet be an option for some. In order to obtain a commercial loan, however, you will definitely need to have your finances in order as well as being able to make the lender realize what a great opportunity the franchise, and your ability to manage your own branch of it are.
Some franchise companies finance from within, but it does not happen often. Finding out if your franchise company will offer this sort of loan is fairly easy, as it is usually contained in the Franchise Disclosure Document. Usually, there has to be a solid reason that the franchisor would lend you the capital- perhaps potential gains in a new market or if you are very experienced. In order to raise your chances of being able to use this option, make sure that you are strongly qualified and can outline that to the franchisor. If this isn’t an option, sometimes they are able to refer potential franchisees to lenders who may be able to help.
There are usually options in grants or through the various small business programs. If you are ready to do paperwork, you will find that the time and effort just may work out for you. The state government often also offers help for small businesses or franchises, as well as the small business organizations in various areas. The actual Small Business Association does not lend to borrowers, however, they do guarantee parts of loans made by those lenders who they approve and you may find that there is a loan program that works for you. If you find a franchise that is approved by the SBA, you have a much better chance at this option and usually this option is much more timely and simple.
Another option is using a home equity loan, or borrowing against your house. If you have enough equity in your home, this can be a good source of funding for your franchise. However, the risk here is that you are essentially risking your home. If you make sure that you are able to get with a franchise that shows potential, this can lessen the risk but it is always there, so you have to be very careful. These are a few different ways that you can obtain funding for your franchise, there are others out there available if you do your homework, but these are the ones that most people find the greatest amount of success in.
