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How To Find A Loan For A Business Franchise

Written by: Candice Clem

Article Overview: There are some basic steps that can help the soon to be franchise owner acquire the loan and financing that allows them to go into business for themselves.

How To Find A Loan For A Business Franchise

For many people who want to be in business for themselves it is not the pressure of running their own small business or business franchise that keeps them from taking the next step. It’s the cost of purchasing that business or franchise, and then maintaining the initial investments required to run a business before profits overtake the cost. Typical trends in small business indicate that the first two years of a small business can be the hardest, and sometimes it takes until the third year of a new business to realize the profits that truly make being in business worth it. That time period between starting a new business and realization of profits can be greatly reduced by considering buying into a franchise.

Often times because of the success of a proven business model and a recognisable name and product the franchise market can reach productivity much faster. There is still a sizeable cost involved in purchasing a franchise however and even low-cost options might still be out of reach for the entrepreneur. Especially if the desire to be own a business comes from a need to increase financial standing, coming up with the net worth and initial investments required by franchises can be difficult. Luckily there are many financing and loan options that are available to the franchisee. Many franchises themselves have partnerships with third party franchise lenders and some even offer financial assistance directly. There are some basic steps that can help the soon to be franchise owner acquire the loan and financing that allows them to go into business for themselves.

The first type of financing that many franchise and small business owners find themselves in need of is invoice financing. Especially in the volatile economic status of a newly purchased franchise, cash flow is extremely important. When a service or product is provided to the customer an invoice must be issued. Typically the customer then has between 30 and 90 days to make a payment on that invoice. That could mean an entire financial quarter between the service actually provided and the cash flow that service represents. Many new businesses simply do not have the financial depth and stability to operate for three months without any cash flow. That’s why there are invoice-financing options. Decision Finance, the leading invoice finance provider, is one particular company that allows a business owner to receive payment in advance within 24 hours of issuing an invoice. Naturally there is a financing fee, but the ability to access the funds for the service provided 29 days earlier can often times allow a business to move forward and provide more products and services than initially able to in the early phases of the companies development.

Typically a business that deals in high volumes of sales, inventories, and products needs to have a certain amount of credit to purchase inventory. This coincides with a need for overdraft protection. It allows a small business franchise the ability to purchase the products, supplies, and advertising they need without being dependant on cash flow to provide all of the up front costs of operation the business. Finding a loan for overdraft protection has become much simpler in the UK and where many financial assistance programmes were previously offered to only select large stable businesses, the small franchise owner is now able to access many of these programmes as well. Since an overdraft protection loan or inventory credit account is an unsecured type of loan it is most likely that a business owner will secure this type of financing from a financial institution that they have developed a good business relationship with. It may be difficult to receive this type of protection initially from a new financial institution and other financial loan methods may need to be sought out.

For the individual that has already found the particular franchise or business for sale that they desire a commercial mortgage is probably the type of loan needed to finance property or land. Much like a residential mortgage this will be secured through a financial institution that provides mortgages and interest rates, repayment terms, and prepayment penalties are critical in the feasibility and affordability of the loan. It’s imperative for the franchise owner when finding a loan to consider what the likely hood of moving to a new location, or re-selling the property will be when thinking about the different types of commercial mortgages available.

Finally when developing a successful franchise opportunity many business owners need to purchase or acquire an expensive piece of equipment or machinery. Leasing products can sometimes allow the franchise owner to acquire what they need without acquiring legal title. There are many different types of asset based lending which is a form of secured financing, and some will allow you the option of re-leasing a new piece of equipment when the term has expired. Other styles of leasing or asset based lending will have an ownership buyout or purchase price after the term of the lease providing legal ownership of the equipment.

Some franchises refer their owners to a preferred financing institution. For certain types of loans that are more risk based, or unsecured, the franchise in question may have a financial institution that they have established a relationship with. In those cases finding out how the name of the franchise that customers recognise also is a name that financial institutions recognise provides even more benefit to choosing the franchise route. Other franchises such as the Yellowtom franchise, which is a web franchise offering local loyalty coupons and bonuses to members, offers direct financing as a part of their franchise opportunity. Whether it’s to get off the ground, or to run and maintain a new business the financing options are out there for small business and franchise owners. Understand relationships, what a particular franchise offers, and what type of financial needs are required for a specific franchise and product are the keys to know where to go for the type of loan that will allow each business to experience profitability.

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Article Tags: business franchise, business model, business worth, cash flow, economic status, entrepreneur, financial assistance, franchise market, franchise owner, franchisee, franchises, initial investments, lenders, loan options, own a business, party franchise, realization, small business owners, starting a new business, time period



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