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4 Tips on Franchise Financing

When looking into buying a franchise or handling a franchise financing, it’s a good idea to account for all of the benefits that you will encounter as opposed to starting a business on your own. A business model that has been proven to be successful should already be in place. Also, the franchise should have an established name so branding should not be an issue.

Most franchisors will provide some form of training for not only you working in a franchisee capacity, but also for your employees to get them up to speed quickly. They will assist with a marketing and advertising structure to help get the word out about your new business.

There are some drawbacks to opening a franchise. You will have to pay a franchisor fee to the corporation to use their name and their services. You also still have to face the usual fees that come with running a business; inventory, utility payments, supplies, payroll, housing (rent), etc.

That being said, it probably is more cost efficient and your liability will be somewhat limited dealing with a franchise. Not to mention, with the corporation helping you with your start up, and having a stake in you being successful, it’s probably more cost friendly than starting up your own business.

So what are your options for funding a franchise?

  1. Deal directly with the franchisor. Some franchisors offer franchising. They will loan money to you at a specific interest rate to help you get your franchise off the ground. If your franchisor doesn’t offer lending, see if they will assist in the lending process by pointing you to a lender they usually do business with.
  2. Go to a bank. Bank loans are usually how businesses finance their startups. Although with the bank industry as it is, it currently is more difficult to get approved for a loan. Just the same, there are some banks that specialize in assisting small businesses with their startup capital.
  3. Joint ventures. If there is someone you trust, who you know has the money, you could set up a joint venture. They could be a silent partner, putting up the finances while you handle the physical labor. If you do decide to investigate a joint venture, make sure you have a business savvy lawyer draw up air tight documents for both sides.
  4. Do it yourself. If you have the money, you can finance your own franchise. Although it would be more beneficial for you to keep your money and use it as collateral to finance your business (also called using other people’s money). You don’t want to put all your eggs in one basket, but if you feel you can recoup a quick return on your investment, then you may look at this as an option.

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