How to Finance Your Franchise

How to Finance Your Franchise

Owning your own business is part of “The American Dream” and owning a franchise is a popular way pursued by thousands of Americans to fulfill that dream. But there is no question that owning and operating a franchise is not easy. However, as Dr. Roopleen Prasad, eye surgeon and author, has encouraged, “If you have a dream, don’t just sit there. Gather courage to believe that you can succeed and leave no stone unturned to make it a reality.” Ah, but a formidable question is how to get the money to buy and operate a franchise.

How to Finance Your Franchise

Desire and inspiration notwithstanding, it is important to solve the financial question before signing a franchise agreement. You are going to need money and plenty of it. Here are some proven franchise financing options:

• Some prospective franchisors offer their own franchising, but you will need to explore the benefits and costs of their financing offer compared to other financing that may be available. 

• A traditional bank or credit union loan may be available, but these institutions tend to be very conservative in their lending and they may require collateral against the loan. 

• The Small Business Administration (SBA) offers loans through partnering financial organizations at attractive rates and terms. 

• There are now many online lenders offering financing to small businesses. 

• If you have 401(k) retirement funds, those may be borrowed against to fund your business. 

• There are franchise financing companies that are specialists in providing financing for franchise owners.  

To secure franchise financing, it is important to know how much and for what purposes you will need funding. As well, lenders will carefully evaluate your business plan.

Franchise Financing Mistakes

• Paying a loan brokerage firm without a loan approval in hand. 

• Paying a franchise fee based only on a loan “pre-approval.” Get the commitment letter first. 

• Signing a lease before securing financing. 

• Not getting enough financing.  

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