Simple Guide to Franchise Financing

When starting a franchise business it is important to have an understanding of how you’re going to finance the start and operation of the business. Properly understanding the costs associated with the startup of the business in addition to the operation of the business prior to turning a profit is important to ensure you have a thorough understanding of where you need to acquire financing. In addition, it is important to ensure that your method of financing is going to work for you in both the short-term and the long-term.

Liquid Capital

One of the first and foremost sources of financing the start of a franchise involves the use of available capital. Many entrepreneurs can use resources in their checking and savings accounts in order to pay for the costs of starting a business. In addition, any investments which can be easily converted to a cash value can be used to start a business as well. It is important to note that using all liquid capital available may not be a solid strategy for financing the start of a business. It is important to ensure you leave enough capital available for operating costs and living expenses.

Converting Investments

There are a number of investments which aspiring entrepreneurs have access to which can also be converted into capital. Many invest in stocks, bank notes, and other short-term and long-term investments which can be converted into a dollar amount for use in starting a franchise. It is important to take a look at your investment portfolio to look for investments which can be converted into a cash value prior to the start of the business.

Home Mortgage

Many home owners have the unique opportunity of obtaining a second mortgage on their property as a source of income. This can be a solid opportunity to obtain another source of financing for a business, but comes with the added risk of losing the property if the payments are not being made towards the mortgage. It is important to weigh the level of risk associated with taking the second mortgage to the ability for the business to turn a profit over a period of time.

Bank Loans

A number of banks and financial institutions offer entrepreneurs with the opportunity to take loans for the purpose of financing their business. It is important to connect with your primary bank in addition to any credit unions available to learn more about the loan opportunities, repayment plans, and the interest rates associated with the loans. Prior to signing a contract with a franchise owner, it is important to ensure your eligibility for a loan.

SBA Loans

In some cases entrepreneurs may have a difficult time obtaining a bank loan. Some financial institutions will also offer their customers the opportunity to obtain a SBA-backed small business loan. It is important to inquire about the eligibility of a SBA loan in addition to the costs associated with repayment of the loan.

Franchise Financing

Many franchises offer their franchisees the unique opportunity to obtain financing directly through their company. Those interested in starting a franchise should contact the franchise company to discuss the opportunity to receive financing, the interest rates for any loans received, and other forms of financial assistance they can receive. In addition, many franchises will provide them with repayment plans which take into consideration the performance of the business.

Friends and Family

Many entrepreneurs also have access to friends and family which may be willing to invest money into the start of a business. One of the largest benefits to getting friends and family involved is a lower interest rate if one is agreed upon and generally favorable terms. In addition, friends and family can assist in starting the business and can get involved in the operation of the business.

As with any kind of investment opportunity it is ultimately important to understand all of your options and the long-term benefits and consequences of each of them.

 

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