Ways To Finance Your Franchise Start-up

Published December 4, 2020 by WC Team

Ways To Finance Your Franchise Start-up

Franchising is when you, as the franchisee, buy the rights of an existing and thriving business from the owner of the franchisor. When you buy the business’ rights, you will have to pay a franchise fee and an ongoing royalty fee in return for using the brand name, logo, ongoing support from the franchisor, and the use of their proven system. 

Franchising a business has more potential to thrive as it already has a system that is proven to work and a name that most people are already familiar with. You will also avoid mistakes that most start-up businesses do as the franchisor has already perfected the system, including daily operations through their experience. If you are interested in business franchising but you are worried your budget might not permit you, here are some ways to financing the franchise. 

Financing By The Franchisor

The first option you can opt for is franchisor financing. Franchisors are willing to help their franchisee in financing the franchise. Most companies with franchise businesses have their own financing solution that is exclusively tailored for their franchisee. 

After all, these companies are the ones who will benefit when a businessman applies for a franchise from them. This is also the most convenient solution to your financing problem. If you acquire financing from your franchisor, you will have a one-stop-shop for all the things you need. 

Alternative Financing 

If you do not want to get franchisor financing for some reason, you can opt for alternative financing, like online lenders that offer loans online. Some lenders offer their services online nowadays, so it’s not hard to find an online lender. What you need is to make sure that you are choosing a legit lender. 

For new business owners that are first-timers, it would be hard to acquire this type of financing for a franchise. Most online lending companies require that your business is already operational for a specific number of months and with a minimum annual profit. However, you can still go for a personal loan where the lender will only require you to have collateral. 

SBA Loans 

Another popular way to finance your franchising is to go for a traditional bank loan. If you can qualify for an SBA loan, the bank will offer you a great interest and repayment option. Before you rush into acquiring a commercial loan, you might want to try an SBA loan first and see if you qualify. 

The institution where you apply for an SBA loan will need to check your credit record and business plan to determine if you are eligible for an SBA loan. You will need to have a good credit score to be considered for an SBA loan. 

Retirement Loan 

You can borrow against your retirement fund if you have a 401(k) or a 403(b) account for your retirement. You can use the money you can borrow on your retirement fund to finance a franchise business. Although you cannot borrow against an IRA, you can purchase a business using it, including franchising a business using a ROBS or Rollover for Small Business. 

You can also withdraw funds from ROTH IRA as an alternative. If you are going for this option, make sure you talk to a tax professional before tapping your retirement fund. When worst comes to worst and your business fails, or if you fail to follow the IRS guidelines, you will be faced with a huge tax bill and will compromise your retirement. 

Friend And Family Loan 

Another way to fund your franchise business is to borrow from your family or friend. However, this option is highly discouraged by experts as it may compromise relationships. You can either borrow money outright or ask them to become your business partner. Acquiring funding from a family member or a friend is the easiest way to finance your franchising business. 

Although the risk is high if you can not pay back in time or if the business fails, if you borrow money from your family and friends, make sure that you make an agreement, and it is also best to offer interest. After you agreed to an agreement, make sure that you will follow every bit of it to spare your relationship with them. 

Personal Assets

Your assets can be turned into cash anytime you want it to be. If you have personal financial assets, this is the first and easy one to pull out as it is already available in cash. Many businessmen use their personal savings to finance their businesses. 

Besides personal cash saving, other assets such as a home, a car, or jewelry can be sold for cash. You can then use some of this cash to finance your business franchise. It is up to you what approach you will use to fund your business. 

Takeaway

Starting a business is not easy, especially if you only have limited funds. But with these financing options, you can start and operate your dream franchise business as soon as you are approved by one of these financing options. Now, all you need to do is to do well on your business and make sure to pay what you owe. 

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