Funding for Franchising – We Have The Options
Naturally, you are very excited about your upcoming franchise purchase and can’t wait to tell all of your friends about it. However, there’s always one detail that should be well taken care of before you sign your papers, and that is the question of funding. It is always helpful to work with a professional when it comes to finding creative ways to secure funding for your franchise, in order to ensure that you receive many benefits such as the ability to prefund capital, fast approval times and fixed rate loans for a good time period.
Three Types of Funding Available for Franchisees
There are essentially three ways that business owners can secure the money to finance their new franchise.
The first method of securing funding is to finance it out of one’s own pocket, if you have the available resources. Those who choose this option frequently focus on opening one location and have a good level of confidence that it will be profitable. Best of all, this method prevent costly interest from accumulating in the future and the cash flow that results can then eventually be used to open more locations.
Another option for funding requires taking out a secured on the basis of your personal assets, such as an SBA loan. This option offers you the greatest flexibility, since it can easily adapt to any changes that occur in your business. The greatest challenge to using this method involves actually securing the loan by getting enough of your personal assets to cover it. Also, the true costs of financing can sometimes be very complex as there are many types of financing available as well as many potential fees that can accumulate over time.
One great location to start looking for financing using the second method is through the franchisor, which can sometimes carry the entire loan or just a fraction of it – anywhere from 15-75%. Your franchisor understands the business better than anyone else and has often already made the necessary arrangements with the appropriate leasing companies to cover the most significant parts of running the franchise, such as the purchase of equipment.
The third option is to take out a commercial business loan, which take into account only the franchise assets and not one’s personal assets. These are possibly the most flexible loans of all. However, it is always important to apply for such loans with the help of a trusted advisor and to ensure that all promises are made in writing to avoid misunderstanding at some point in the future.
The Process of Securing a Loan for Your Franchise
The typical steps of securing a loan for your franchise include an accurate assessment of your net worth, which often involves performing a balance sheet of your assets and liabilities as well as a close look at your particular living situation and track record of paying off debts. It’s important that you have a good credit record and a well-established business plan in order to secure the best loans.