A lot of people dream of becoming business owners at one point or the other in their lives but find it difficult to choose what products or services to render to customers. Franchises are a great option to consider since these businesses already have a recognized brand. So, many customers already know about the franchise, and their product or service has proven to satisfy the needs of the customers.
As a prospective franchisee, you will probably need funding to buy the rights to open a franchise, purchase inventory, lease equipment, expand the business, and so on. But not everyone has the money needed to start to franchise lying in the bank. In this article, we have put together 10 common funding sources you can consider to get the required capital to succeed as a franchisee.
1: Franchisor Financing Options
Many people don’t like asking the franchisor about available financing and loan options for some reason. It may be because they fear they will set a bad precedent if they tell the franchisor they need to secure funding. But the truth is, the franchisor should be number one on your list of funding sources to look to when you need to borrow money for your business. Almost all franchisors in America offer some kind of debt financing to their franchisees. Some franchisors may also provide no principal loans, allow balloon payments, cover some of the expenses themselves, or offer lease deals for equipment and operating costs.
2: Traditional Banks and Credit Unions
One of the perks of seeking funding from a conventional bank or credit union is that they are going to see the advantages of partnering with a well-known franchise business rather than an unknown stand-alone company. If you decide to take this route, you will have to ensure your credit is in good standing and create a detailed business plan to raise your chances of getting approved for a loan. So, gather your financial documents. Plus, if you are able to put some skin in the game– say, 20 % of the deal– banks will view your loan application more favorably.
3: Small Business Administration
Most franchisees are able to secure SBA loans as long as they meet certain criteria. Compared to traditional bank loans, SBA loans require smaller deposits and have longer repayment terms, making them an ideal option for people who are just beginning a new business. Obtaining a loan through the SBA will give you more backing with the bank and lower the lender’s risk exposure for the loan.
4: Business Partners
You may also need to partner with another person or people to achieve your franchise dreams. Looking for a business partner who will contribute some of the required start-up costs can be a great option. However, you need to put some rules in place regarding who will run the business, manage the workers, and divide the profits. Failure to do so can make the partnership hell for both of you. Alternatively, you can look for an angel investor or venture capitalist who has a great passion for your franchise industry to give you the seed capital.
5: Home Equities
Another franchise funding option you may want to consider is using your house as collateral for a loan. You have to be sure that your home’s value has increased or stayed the same to secure the equity loan. Find time to determine how much it will cost to set up a franchise business. You want to avoid a financial situation where you are unable to repay the loan since make you wind up losing your house.
6: Getting Money from Friends, Family, and Neighbors
If you don’t want to lose your house to lenders or pay high interest on loans, you may decide to ask your friends and relatives to lend you the money to start your business. One advantage of taking this funding route is that you are able to set your own repayment plans in a way that suits your personal finances. It may also be easier for you to adjust the payment plan if your financial situation changes.
7: Retirement Plans
You can also take out money from your retirement plans, but this often comes at a cost. The Internal Revenue Service (IRS) collects tax on any money you deduct early from retirement plans, such as a 401K. Fortunately, you can work around the IRS penalties by registering your franchise business as a C-corporation and rolling the funds into a profit-sharing plan.
8: Stock Assets
Remember the cheap stock you buy for just for the fun of it many years ago that is presently fetching you a lot of money. Bonds, stocks, and mutual funds can give you the money to fund your franchise business or, at least, money to deposit for a bank loan. However, before turning these assets into cash, check to be sure that they are not held in your IRA or any other profit-sharing plan.
9: Crowdsourcing
Almost all of us have visited a crowdsourcing platform to donate to charities, contribute funds for online gaming software, etc. Although asking complete strangers to help you fund your franchise business may be unappealing, it is another route you can take if other financing options don’t work out for you.
10: International Franchise Organization
The International Franchise Organization (IFA) offers a wide range of programs and resources that can help you find the ideal franchise to invest in. This organization also encourages women, minority people, and other individuals to consider franchising, as there are many exclusive programs that can help them secure funding.
Click on this link to find out if you are eligible for a small business loan.
