4 Tips for Funding Your Franchise
While it’s easier for prospective business owners to purchase a franchise than to develop a startup from scratch, franchises still need funding to grow and operate successfully. Here are four tips for funding your franchise.
Understand Your Options
Many franchise financing options exist for new and current owners. First, check whether your franchisor offers direct funding or partnerships with preferred lenders, such as banks. Preferred lenders may offer special deals and discounts for franchisees. You may also choose from more traditional options such as commercial bank loans, SBA loans and alternative lending. Non-traditional funding options include crowdfunding and the use of personal assets.
Know Whether You Qualify
Before applying for franchise financing, you need to make sure you qualify. You may be eligible for certain types of funding and not others. For example, you may qualify for a commercial bank loan but not an SBA loan. Franchisees typically need to provide their financial records and prove that they have a positive personal or business net worth. Certain franchisors may also require their franchisees to provide records of their liquid assets.
Review Your Funding Needs
There are several things you need to know when you apply for funding for your franchise. The first is the overall cost of purchasing and starting your franchise. You should also have a solid estimate of how long you expect your franchise to take to become profitable. Determine the maximum size of your down payment. The down payment influences the rates lenders will quote you. The more money you can put down, the lower your rate is likely to be.
Avoid making an agreement with the first lender you connect with. Speaking to multiple lenders allows you to determine the best type of funding for your needs and compare rates, terms and conditions so you get the best deal. You may also choose to use more than one type of funding. This can help reduce your level of financial risk. The more options you have, the more chances you have to choose the best sources of funding for you and your needs.
When you start a franchise, you have the advantage of backing and support from your franchise’s parent company. The parent company may offer funding to their franchisees directly or indirectly or provide information and advice on what types of financing are suitable for you and how much money you may need to get started.