Franchise Blog

If you are interested in buying a franchise, you have probably taken into account all of the benefits that a franchise offers over starting your own business. You will benefit from a proven successful business model and an established brand name. The franchisor will support you in a variety of ways – from providing training for you and your employees to paying for marketing and advertising.

However, opening a franchise can be more costly in some ways than starting your own business. In addition to the costs every new business faces; utility bills, office supplies, rent, and payroll, you have to pay the franchisor a fee to use their name and services, and royalties to support their advertising and operations. This can still be a good deal for you, as it can be more efficient and less risky overall and therefore less costly for you in the long run, but it can be a lot of expense up front to deal with. What are your options for funding this franchise?

1. Ask the franchisor. Some franchisors will offer financing, effectively loaning you the money to buy their franchise. Many will not, and some will only offer partial financing. If not, some franchisors will be willing to help you in the financing process by referring you to a lender of theirs.
2. Banks. If the franchisor will not help you fund the franchise, your next step is to try a bank loan. When choosing a bank loan option to finance your franchise, shop around. Some banks specialize in loaning money to small business owners. Some banks may have more appealing terms and lower interest rates than others. If you are having a hard time figuring out bank loans, get a lawyer to help you interpret the agreements before you sign anything.
3. Ask people you know. Find out if any of your friends or family have extra money and would be willing to invest in you. You should offer them a return on their investment, just as you would pay an interest rate to the bank. However, take great care when exercising this option. If things should go badly with your franchise and you are unable to repay the people you know, things could go sour in your personal relationship, so be willing to take that risk if you are going to ask someone you know to invest in you.
4. Pay for it yourself. If this option is available to you, it has the advantage of keeping you from having to pay interest on the money you used to buy the franchise. If you have enough cash but would be stretching yourself thin, weigh the benefits of no interest with the costs of tying up all of your money into your business. You may want to have cash on hand for other things. Furthermore, although buying a franchise is considerably less risky than starting your own business from scratch, you still bear some risk, and if all of your cash is tied up in the franchise, you may find it even more problematic than had you borrowed the money from a bank.

Filed under: Buying a franchise, Franchise Advice