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What are the Best Financing Options for a Franchising Business

A franchise offers independence and opportunity of owning a small business as well as the infrastructure and support from a large corporation. This is an excellent opportunity for anyone who wants to become an entrepreneur. However, opening up a franchise requires a significant investment capital, which includes franchise fees, advertisement costs, and royalty fees plus the amounts needed for setting up the franchised business itself. 

Unfortunately, not everyone has that kind of cash. Luckily, there are ways to make your franchising dreams come true.

Related: Franchising Basics: The True Cost to Open a Franchise

What is a Loan and Why Do I Need It?

A loan is revenue that people obtain from the bank, lender or other financial institution to pay for a mortgage, car, tuition, business, or anything. However, with a loan, the individual would have to pay back the money along with the interest rate. Fortunately, people usually set up a payment plan where they can make a monthly payment to pay off the loan.

It’s profitable to obtain a loan for the franchise because not everyone will have the initial payment upfront. After all, it is quite expensive, and getting a loan would be advisable. Once the business takes off and the individual obtains a substantial amount of profit, they can easily repay the loan in the future.

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How Do I Get a Franchise Loan?

The first step in applying for a franchise loan is to prepare for a meeting with the lender. This means that the individual should identify the type of franchise they want to pursue, along with having the supporting documents and loan package organized. 

The goal is to make an excellent first impression and prepare to impress the lender. After all, the lender wants to make sure that they trust the person opening up the business and that the money is being put to good use. 

The second step is to apply for a loan. The best place to start would be to look up a business lender, national lender, or bank. It’s profitable to target lenders that are familiar with the brand and have made loans to a franchise before. The process can take up to 120 to 190 days, and it’s normal to receive a bunch of rejections before someone is willing to offer the money.

Sometimes, lenders may charge an application fee and conduct a  hard credit check. It may take a while, so it’s profitable to be persistent because all it takes is one lender to make a franchise dream come true.

Financer Franchising

If a franchisee needs funds to purchase a franchise, the best thing to do is to have a conversation with the franchisor. A lot of corporations in the franchise industry often provide financial solutions design for their franchisees either through a specific lender or a partnership. This is a common way to finance a franchise, and it also has a variety of benefits. One of the main advantages of using the franchiser financing option is that it becomes a one-stop-shop. A lot of programs offer a financial solution not only for the franchisee but also for purchasing resources and equipment to start the business.

Related: How to Start a Franchise in 15 Easy Steps

Commercial Bank Loans

coins in a jar and stacked up

When it comes to commercial bank loans, people often consider a term loan. Under this model, the lender or a bank will provide a lump sum of cash upfront that the individual will repay along with interest rates and a monthly installment. With a commercial bank loan, the lender will want to review the business plan and credit history. The lender will use a document to assess the credit history and determine whether or not the individual can repay the loan.

SBA Loans

SBA loans are partially supported by the US Small Business Administration and funded by other lending parties. Since the SBA has reduced the risk to the lender by providing a portion of the loan amount, the lender is more willing to offer the loan with a lower interest rate and longer repayment terms. 

The SBA loan is an excellent option for financing a franchise only if the individual has the financial need and credit score to be eligible. Keep in mind that the qualification can be stringent, and the application process tends to be longer, but it’s worth it once the loan gets approved.

Contact California Franchise Attorney to help you buy a franchise

Alternative Lenders

Anyone who needs the fund to finance their business quickly can apply for an alternative lender. An alternative lender has less stringent guidelines and shorter turnaround time. They provide a variety of loan options such as term loans, business lines of credit, and equipment financing. Keep in mind that alternative loan options tend to be more expensive and offer shorter repayment terms and lower loan amounts than traditional lenders. Therefore, this is an option to supplement existing finance or for individuals who cannot qualify for an SBA loan or a bank loan.

Crowdfunding

One of the most innovative methods of obtaining finances is through crowdfunding. People can set up their crowdfunding page or search for specific organizations that can fund the franchise and business. Some places will crowdfund a particular business type or industry. Crowdfunding is an excellent option for people with issues in their financial history or unable to obtain a loan.

Friends and Family Loan

family taking a picture together

Borrowing from friends and family is also a good option. This loan option usually comes with an excellent price. Anyone who chooses to take a loan from a family member or friend should draft a contract that includes expectations and repayment terms. This is to prevent any disagreements and breakups later on down the road.

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Conclusion

Becoming the owner of a franchise is a great opportunity, but the initial cost is quite expensive. Fortunately, these loan options above can help future business owners to open up their franchise. Once the business profits, the franchise owner can repay the loan along with interest rates. 

Keep in mind that it’s vital to have an expert lawyer and legal team to look through or create contracts and agreements to prevent any legal issues. California Franchise Attorney have years of experience working in the franchise industry and have helped many franchisors and franchisee start their businesses. 

With all these excellent options available, anyone can jumpstart their franchise journey today.

Related: What Is The Difference Between a Franchisor and Franchisee

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