Tweet

5 Top Franchise Financing Options Discussed

Guest post by: Cory Barber

Article Overview: A perceived obstacle that sometimes is mentioned from candidates I work with as a franchise consultant is this: “What is the best way to finance this franchise business venture?” This is a very legitimate question that needs to be addressed. A few, less-than-serious franchisee wannabes have absolutely zero clue of where they’ll get the money or even how much of an investment is involved. The vast majority, however, have at least some idea of how they will finance their business. They simply need some clear, concise information about what each option entails. I'll discuss 5 options here.

5 Top Franchise Financing Options Discussed

A perceived obstacle that sometimes is mentioned from candidates I work with as a franchise consultant is this: "What is the best way to finance this franchise business venture?" This is a very legitimate question that needs to be addressed. A few, less-than-serious franchisee wannabes have absolutely zero clue of where they'll get the money or even how much of an investment is involved. The vast majority, however, have at least some idea of how they will finance their business. They simply need some clear, concise information about what each option entails. Here are 5 franchise financing possibilities and what they entail:

1. SBA (Small Business Association) Loan. This is a great place to check out because the SBA offers favorable terms and recognizes the importance of our nation's small businesses. They provide competitive rates, no points, and no penalties for pre-payment. As a potential franchisee, you may qualify for an SBA loan, based on criteria such as number of employees, business size, and annual sales. Theirs is a simple and straightforward process as compared to other options.

2. The Franchisor. This should be one of the first questions you ask your franchisor during your due diligence process. Their may already be pre-approved lending relationships established with banks or other third party institutions that you, as a franchisee, can utilize. Also, keep in mind that the franchisor has a vested interest in your success, so you should ask if there is a franchise funding program in place for franchisees to take advantage of.

3. 401k Or Retirement Fund. Initially this may appear as an unlikely or scary source to tap into. I would not recommend considering this option for an independent business start-up. However, because of the overall high success rate of franchising, this source can actually be a wise business move, as you are re-investing the funds, not withdrawing them, which, of course, would involve stiff tax penalties.

4. Other Investors. This could be a viable way to go, especially if the franchise you're buying comes with a very popular brand, as the likelihood of success increases substantially. Be sure that your proposal is detailed and includes your business plan and specific goals, along with your past accomplishments and achievements, via other business ventures or employment.

5. Family And Friends. Maybe you are especially close with a certain relative who is well-capitalized and would be willing to loan you the money for your franchise business. Or perhaps you have financially assisted a friend in the past and he or she has been waiting for an opportunity to return the favor. Be careful here, though. If you do choose this option, make sure that the agreement is in writing, and is clear and concise. It's not worth losing a friend or a close relationship over money.

Whatever you choose, do your homework. Shop around. Consult with your accountant. Discover what programs are available that best fits your specific situation. As you can see, there are plenty of solid options to choose from.

Related Articles
  How to Finance Your Franchise Business Opportunity
  How To Finance A Franchise – Your Options and Risk
  Financing a Franchise in Canada
  How Much Will A Business Franchise Loan Cost When Financing A Franchise In Canada ?
  Finance options when looking at Franchise Business
  How to Finance Your Franchise
  Buying a Franchise - 3 Things You Must Know About Franchise Finance and Franchise Loans
  Franchise Business Financing Canada – (Preparing your strategy)
  Franchisors as a Source of Financing
  How to Be A Success in Financing a Franchise in Canada
  Financing a Franchise – Whats the Deal on Franchise Financing in Canada?
  Franchise Business Financing - Canadian solutions
  Ten Things Mom Didn’t Tell You About Financing Options For A Canadian Franchise Business Loan
  Franchise Financing – A Canadian ‘ how to’ Model !
  "Untouchables" and "Discussables"
  Finding the Money for a Franchise
  Franchise Financing - Canadian approvals!
  Franchise Funding and Financing Options for Franchisees In Canada
  How to Finance Your Franchise Investment
  Don’t Make These Mistakes In Financing Franchise Opportunities In Canada . A Franchising Loan Must Make Sense – Here’s Why.

Article Tags: financing options, franchise business, franchise consultant, Franchise financing, franchisee, franchisor



Related Forum Posts
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Simple poll for the group. - On personal opinions only, what company represents Futures Options and why? I thank you, before hand for your interest and feedback...
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

What Type of Business Should I Start?

Basic Operating Question (BOQ) for Empowerment

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.