How to Get Financing for Your Franchise
When you decide to get on board with a franchise, you may do so for several reasons. Franchise ownership can offer a lot of flexibility and benefits you won’t get when you own an independent business. One factor you run into either way is the cost of starting up and operating your franchise; sooner or later, you’ll find you need help with financing.
Pre-Work
Your conversations with lenders and financiers will go more smoothly if you have the information they want from the start. You’ll likely have to answer questions about your net worth, job and location security, and debt payments. You can accelerate the process by calculating your net worth (assets minus liabilities), providing your income and payment records, and contacting a credit bureau to check on your credibility.
You’ll also benefit if you have a business plan ready to show anyone who asks. Put thought into how you plan to operate your franchise and how you’ll make and spend your money once you have it. If you have a carefully completed business plan, it can make all the difference between rejection and acceptance of your application.
Finding Financing
You have several options when it comes to financing your franchise:
- Franchisor financing: your franchisor may offer to finance at least part of your start-up and operating costs. Each franchise works differently, so be sure to check out the website of your prospective franchisor and see how they’re willing to help.
- SBA loans: the Small Business Association has a list of franchises eligible for their loan guarantees. If your franchise qualifies, you’ll also need to prove your suitability to operate this business; usually, you’ll have to have relevant experience and good personal credit.
- Bank loans: while your bank may be more agreeable if you have an SBA loan guarantee, you can still use an ordinary loan if your financial profile is acceptable.
- Alternative financing: you may have trouble getting a non-traditional loan to start up your franchise, but don’t dismiss them outright. If you reach the required minimums, such as time in business or annual income, you may be able to use alternative financing to grow your franchise further.
- Assets: if you have stocks, bonds, or mutual funds you’ve been saving up, now would be a good time to pull your money and use it to help your business. You can even borrow against some retirement funds if you consult a professional to do it correctly.
