How to Finance Your Franchise Investment?

Funding a franchise is an important decision. We will discuss options and refer you to financing experts who can provide insight into the pros and cons of each approach.

Here are some of the most common options for franchising funding.

Fund with cash
Maybe you have been planning on launching a franchise for some time and have been saving for the inevitability of launching a business. You may very well have the liquid savings to pay for the total investment. Self-funding is a great option for people who do not like debt.

SBA (Small Business
Administration) Loans
The SBA is a government agency fully dedicated to funding small businesses. Lenders provide these loans and a portion of each loan is guaranteed by the government so lenders are incentivized to provide lower interest rates and better terms. Because of this, the SBA is the go-to resource for potential franchisees. The SBA provides competitive rates and ratios.

Banks
Banks provide term loans and lines of credit. When you receive a term loan you get a lump sum of capital and need to pay it back, with interest, over the term of the loan A line of credit is a fund that you can tap into on an as-needed basis. You only pay interest on a line of credit when you use it.

Banks provide the best lending terms to their clients so reach out to your current bank first!

Retirement accounts
ROBS or Rollover As Business Startups Loans leverages your retirement accounts by making your franchise investment in your retirement plan. In this case, though, you are using your retirement account to buy stock in your franchise. You will need a qualified intermediary to set this up for you.

Friends and Family Financing
Borrowing money from people you know is a common way of launching a business. A potential drawback is that if there are any issues they can become personal and impact friendships or family relationships. A positive benefit of this is that you have other people vested in the success of your franchise.

Franchisor financing
Some mature and successful franchise brands will do “in-house” financing. These are typically highly customized programs designed for their particular franchise. These programs are based more on the franchisors creditworthiness than on the franchisees and make financing easy with their one-shop approach.

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