Franchise financing doesn’t really call for unconventional methods. You don’t need to opt for crowd financing or peer to peer lending networks for franchise financing. Banks and traditional financial institutions have been financing franchises for decades. They consider it to be safer to fund a franchise business than an absolutely new business. Hence, it is wise to take advantage of such a standpoint taken by most banks and lenders.
First, let us talk about the options you have for franchise financing.
Standard Business Loans
All major banks and financial institutions offer business loans. Some loans are aimed at developing infrastructure, some are aimed at managing debts, some are aimed at funding the working capital or recurring costs and some are aimed at procuring assets as well as business expansion. Franchise financing would be similar to developing an infrastructure because you would be acquiring an asset or developing one and there will be a need of some working capital. You will have to bear a part of the total costs or funding needed but banks and financial institutions will be willing to entertain your application if the business plan is sound. Franchise financing can be quite easy if it is a reputed franchise. But it can become very difficult if no one has heard of the franchise or if the franchiser doesn’t yet have a substantial market share or sufficient revenue.
Small Business Loans
An SBA loan is a more desirable option for franchise financing. The rates of interest of an SBA loan will be much less than what standard business loans would charge. The associated fees are less, the repayment terms are more relaxed and there is substantial help from loan officers working on SBA loans. Also, SBA has special loans for women and military veterans which are much more lenient and also more rewarding financial owing to very low rates of interests. Hence, women and military veterans looking for franchise financing must consider an SBA loan.
The shortcoming of an SBA loan would be the capping of five million. If the franchise financing requirement is more than that, then an SBA loan will not be relevant.
Franchise financing is much easier with an SBA loan or even a standard business loan as compared to starting a business from scratch. A new franchise is a startup but it has the backing, the financial history and performance record of the franchise to show if the enterprise has promise or if the whole business plan is just about claims.