Franchise Financing: What are your options?

All the benefits of owning a small business combined with the status of a nationally recognized brand. It’s easy to see why so many small business owners and investors are looking at starting a franchise. However, it can be difficult to find a franchising option that doesn’t require a substantial amount of cash flow. In order to afford this potentially lucrative opportunity, use these easy solutions to Franchise financing.

Financing Options available

Franchises can require a large amount of cash in order to start, sometimes up to $1,000,000. If you don’t have that much capital at your disposal, you’ll need to be creative with your financing options. Many experts suggest you only use roughly 15 percent of your own savings when looking to start a franchise. Here are a few options you have when in need of Franchise Financing.

Conventional Bank’s

A popular financing option for franchising business owners is a traditional bank loan. Bank loans will typically give you great interest rates and high loan amounts. Banks may even negotiate rates and payment details based on your credit history. Although you usually need to have a high credit score in order to receive a traditional bank loan, many banks are more willing to work with franchises. Having a national brand behind your business gives you more credibility than a typically small business. However, when applying for traditional financing banks want to be as secured on the loan as possible. So, they will look for other forms of collateral such as personal properties and other assets to make sense of the loan.

Franchisors

If you don’t have the credit score or assets necessary for a bank loan consider franchisor assistance. Most large franchisors are more than willing to help finance a new location. There are a few options available to you, depending on the franchisor you’re working with. Many will offer you a loan that can be used to cover nearly every starting expense. You’ll be required to make monthly payments with interest, but a profitable location may be able to quickly pay back the loan. Other franchisors choose to lease equipment, which helps cut back some of the larger upfront costs of starting a franchise.

Small Business Administration

One of the best options for business owners to help with Franchise Financing is through the SBA. Most large SBA lenders have a “goodwill” competent built into their loans. For instance Wells Fargo can lend up to $1.5mm against “goodwill”, so all SBA loans under $1.5mm is secured by business assets. They don’t need other forms of collateral to secure the loan. Because you’re still a small business owner, you can still take advantage of SBA loans for your business. Work with SBA approved franchises to secure a loan at a great interest rate for your small business venture. Whether you’re starting your first franchise or expanding a small empire of locations, franchising is an exciting field to be a part of. Look out for more unique and competitive financing opportunities, and contact your franchisor if you have any additional questions regarding this small business adventure. With the right financing option, you’ll soon be on your way to a profitable small business.