A franchise is an independently owned business that carries the name of a larger brand, and Small Business Funding provides working capital advances to a lot of them. These independently owned businesses are built and managed under the guidance of the parent company or franchise. To buy into any type of franchise business, you will need to be able to invest a significant amount of money. Obtaining this type of franchise funding may mean using multiple sources.
What Is Franchise Funding?
Franchise funding is the working capital franchisees need to get started. The money they receive through this type of funding will cover business start-up expenses as well as any franchise fees that will be needed. The amount that is required to start the business is normally more than a new franchise owner can afford to pay out of pocket. Most lenders also require a portion of the investment in cash upfront. This amount can vary from 10% to as much as 30% of the amount that is needed.
Different Types of Franchise Funding
Franchisees can choose from a variety of funding options. In fact, most can combine multiple options to obtain the amount they need without overextending themselves. Some of the most common are:
- Franchisor financing
- Small Business Administration
- Commercial bank loans
- Alternative lenders
- Personal assets as collateral
Mixing and matching different types of funding may be the best option depending on how much money you need to start your business.
Who Will Qualify for Franchise Funding?
Franchisees are often looked at as investors. If you want to purchase a franchise, lenders will look closely at your net worth before considering you for a loan. If you have more assets than debt or a positive net worth, there is a good chance you will be approved. A minimum amount of liquid assets may also be a requirement. If you are interested in any type of franchise and would like to apply for funding, you will need to take a close look at your personal financial situation and do everything you can to create a positive financial profile.
Obtaining a Franchise Loan
In order to obtain franchise funding, you will need to find out if the franchisor offers in-house financing. They may also be able to offer a list of lenders who work with people who are interested in buying a franchise. You will also want to find out if your chosen franchise is listed in the SBA Franchise Directory. This means you may qualify for an SBA loan. As you determine what collateral you have and go over your credit history, you should also create a business plan. Start saving for a down payment as well. Any funds you have saved will be beneficial. Knowing as much about your franchise is essential. It’s also a good idea to apply with more than one lender. This will shorten your wait time if you get two or three denials. Don’t be overwhelmed by the process! Obtaining franchise funding will take time, but when you receive your funds and start your business, it will be well worth the wait.