For all those wanting to become an entrepreneur, a franchise works out as one of the best options. This offers not only flexibility but also independence. At the same time, you need to be aware that this franchise requires a good amount of capital investment, including a franchise fee with the advertising costs and also the royalties.
The best available options for franchise financing are listed below.
1.Financing by Franchisor:
You need to communicate with the franchisor first for the required funding of the franchise. There are multiple corporations with franchise businesses that offer financial solutions tailored and designed specifically for their franchises. This can be through partnerships with certain lenders or directly providing capital from the said corporation. This way to finance a franchise works out beneficial in many ways. One benefit being that this is a one-stop-shop for all your needs.
- A Loan from a Commercial Bank:
You have the option of deciding on a traditional bank loan. When talking about financing via a loan, the most common choice is the term loan. With this type of loan, a bank or a lender offers you a lump sum amount of funds upfront. You need to repay this along with the interest as monthly installments over the decided period of time.
Applying for the traditional loan, you will need to provide the business plan to your lender along with the personal credit history. These documents will be used for assessing your creditworthiness.
A good credit history can get you a loan with low rates of interest and also comfortable terms and conditions.
- Loans of SBA:
These SBA loans are backed partially by the Small Business Administrations and funded by their partners. These loan tend to follow a model that is similar to the traditional loans from an alternative lender or a bank. This loan by the SBA brings down the risk to lenders as they guarantee a small amount of the portion of the loan. Lenders are willing to offer more loans with long repayment terms and also low-interest rates.
You need to be aware that the process of applying for the SBA loans is time-consuming and qualifying for these is not as easy.
- Alternative lenders:
You can apply for franchise lending via an alternative lender if none of the above options seem to work out for you. These lenders have stringent requirements with short turnarounds as compared to the traditional financing options. They offer a wide range of loan options like business lines of credit, equipment financing, or term loans.
This might work out a wee bit costly but can work well if you are looking to supplement the existing financing or the SBA loan, or even if you need emergency funds for setting up of the franchise.
Finally, before deciding on any of the above-mentioned options why not try asking your family and friends for financing the franchise for a short period of time, till the time you can repay this.
