What is a Franchise Loan?
A franchise loan is financing for the purpose of acquiring or operating a franchise business. In many cases, the Franchisor will provide or arrange for franchise funding. In this article we will explore alternate methods of financing a franchise.
You can be a success on your own as a business manager without that great idea. You don’t need to come up with a brand idea, a product list, supply chain, costs – you don’t have to do to anything but run the business and make a healthy living for yourself. You can do this by buying a franchise.
Buying a franchise is wholly different from starting your own company, in the sense that though you own the building and can even manage it if you wish, you don’t have to build up your brand. Open a McDonalds, and everyone knows who you are, what food to expect, and will come to you. It doesn’t matter if the store is new to you; it is familiar to them.
That is the power of a franchise.
Benefits of Buying a Franchise
Some key benefits to buying a franchise include:
- Established Brand
- Strong Support
- Management Taken Care Of
For restaurants, you don’t need to come up with specials, new menus, drinks, or even costings. You also don’t need to deal with common tactics like marketing. Instead, you will pay into the marketing fund of your franchise and have the company handle brand building for you. You pay in, everyone benefits.
Loans for Franchise Businesses Explained
Owning a franchise can be very lucrative with very little trouble. An established franchise will already have worked out the kinks and given you the keys you need to succeed. Before you get there, however, you will need to buy your franchise location. To get this money, you have a few options.
One of the best ways to finance a franchise is through the franchisor. Many of the big franchises that you are no doubt familiar with have payment plan options available. They will likely have tailored financing solutions available and will help you cover costs for more than just the initial payment. Most franchisors will also give you an equipment loan as well, so you should be able to run your business smoothly and with an attractive deal.
Before you sign anything, however, always contact a lawyer and review the deal.
Commercial Bank Loans
Not every franchisor will have the capital to front you the money for your franchise. A good way to fund your franchise without that financing is through a bank loan. This loan will be very similar to a student loan or a mortgage. You get the money up front and will have to pay it back over a set period of time with a fixed amount of interest.
For businesses, you will need to provide your personal credit history and a strong business plan. As you are buying a franchise, however, your business loan will mirror a successful company’s. No one will argue that McDonald’s doesn’t have a good business plan, for example. Your franchise’s success will be your success.
Small Business Loans
The best external loan you can get, however, is a small business loan. Interest rates for business loans can be quite expensive. Small business loans or SBAs, on the other hand, can have very low interest rates and allow for longer repayment periods. This is because the U.S. Small Business Administration backs an SBA.
It means that lenders know that at least a portion of their loan is guaranteed to be repaid. If you don’t know how to apply for a small business loan, it’s wise to seek out help. SBA loans can take a long time to apply for and need excellent credit history.
The best way to get the money you need for your franchise if you don’t have good credit is with a personal loan. A personal loan is also called an alternative loan. Lenders around the world offer these loans, but they will cost you. Some, however, might be more flexible with repayments. You could then pay your loan off faster.
You can get the money you need fast, but you will have high interest rates to deal with. You can also leverage your assets. So, if you own your home outright, you could leverage that. If you fail to pay back your loan, they will repossess your home. It can be dangerous, but so long as you keep up with your repayments, nothing bad will happen.
A new way to gain money is to crowdfund. Crowdfunding means pulling money together from other people. They can be friends and family, or they can be from the public. If the franchise you want to buy does not yet have a location in a small town, the community might want to help you get it.
Crowdfunding can either be a donation, or it could be a pre-order type of system. As you are a franchise, it will probably have to be a donation. With friends and family, on the other hand, you will be able to keep track of who funds your franchise. You can then set up repayment plans (even without interest) for all of them. Another way to get their support is to give them a portion of your franchise, so they get dividends.
Interest rates for business loans can be scary. In some cases, they can exceed your ability to make your repayments comfortably. Always make sure that the loan you choose suits you. If an SBA takes too long to acquire, then look elsewhere. If your bank doesn’t give you a loan, you can go to an alternative lender. If you have friends and family who have savings, you can invest their money and either pay it back or give them a portion of your profits.
There are so many ways to fund your franchise. Always go over the terms of the deal with a lawyer. This way you will be confident the contract works in your favor. You don’t want to get stuck in a bad deal. It is also wise to research the franchise in advance. Never buy a franchise if the head company is doing poorly.