Opening a franchise comes with its challenges and requires substantial capital investment. As a first, one has to be prepared to pay out a big franchise fee plus royalties and advertising costs, as applicable. Not many can easily arrange this kind of cash. Sourcing a business loan for funding franchise investment is one option in such cases.
Here are six of the best ways to finance your franchise store easily and conveniently.
If you need funding for your franchise, you can directly reach out to your prospective franchisor for the same. A lot of corporations that have franchise-style business models provide tailored financing options which are designed for their specific business. It could come through partnerships with select lenders or capital is directly offered by the corporation. This is a common way of financing a franchise and provides many benefits.
One main advantage of seeking finance from the franchisor is that it offers one-stop-shop solutions in most cases. Some of these programs provide financing for franchise fees and also for purchasing equipment or other infrastructure to start up the business.
While working with a franchisor for any financing program, you may not need to hunt for further funding. Most franchisors know their business in and out and the associated risks, hence they become the most suited options for financing.
Commercial Bank Loans
Another preferred way of financing a franchise is to opt for a term loan from a bank or financial institution. Under the term loan model, a bank offers a lump sum amount which can be repaid along with interest, in equal monthly instalments for the pre-decided period.
While purchasing a franchise and applying for a commercial bank loan, the lender may want to go through your business plan along with your personal credit history. The lender uses documents gathered in this process to assess your credibility. Banks try to determine if you can afford the loan and gauge your repayment capability.
Apart from banks, franchisees can seek loans or funds from a group of lenders. These can be angel investors who are often business people running successful businesses. They look to invest their funds in rewarding business opportunities. Franchisors can also reach out to venture capitalists, who offer a chance to investors to participate in a fund which is used to buy stocks of a private company. Private equity is another option for franchise funding and it means shares or stocks of a company which is mostly privately held.
It is important to have a well-crafted plan for lenders. This will help in justifying the investment needs of your business. The repayment timeline and interest is also to be agreed upon.
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