5 Top Franchise Financing Options Discussed

A perceived obstacle that is sometimes mentioned among the candidates with whom I work as a consultant franchise is this: "What is the best way to finance this venture in the franchise?" This is a very legitimate question that needs to be addressed. A few, less-than-serious aspiring franchisees have absolutely zero idea where you get the money or even how much of an investment is involved. The vast majority, however, have at least some idea of ​​how it intends to finance its activities. They just need to clear and concise information on what each option entails.

Here are 5 possibilities for financing a franchise and what they entail:

SBA (Small Business Association) loan. This is a great place to see how the SBA offers favorable conditions and recognize the importance of small businesses of our nation. They offer 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, the company size, and annual turnover. Their process is simple and straightforward compared to other options.

The Franchisor. This should be one of the first questions you ask your franchisor during the due diligence process. They could already be pre-approved loan agreements with banks or other institutions established third party that you, as a franchisee, they can use. Also, keep in mind that the franchisor has a vested interest in your success, so you should ask if there is a funding program in place for affiliates to use franchising.

Or 401k retirement fund. At first this may seem like an unlikely source to tap, or fear. I would not recommend to consider this option for an independent business start-ups. However, due to the overall success rate of franchising, this source may actually be a wise business move, as they re-invest the funds, not the withdrawal, which, of course, would entail stringent tax penalties.

Other investors. This could be a good way to go, especially if the franchise you're buying has a very popular brand, as the probability of success increases dramatically. Make sure that your proposal is detailed and includes the business plan and targets, along with your accomplishments and achievements of the past through other business ventures or work.

Family members and friends. Maybe I'm very close with a relative with certainty who is well capitalized and would be willing to pay money for your franchise business. Or maybe you have a friend helped financially in the past, and he or she is waiting for the opportunity to return the favor. Be careful here, though. If you choose this option, make sure that the agreement in writing, and it is clear and concise. It's not worth losing a friend or a close on the money.

Whatever you choose, do your homework. Shop around. Consult with your accountant. Find out what programs are available that best suits your specific situation. As you can see, there are many options to choose from solids.

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