Exploring Various Franchise Financing Options

Franchise financing options explored

Money Doesn't Grow on Trees, but Franchise Financing is Out There if You Know Where to Look.

Have you wanted to own your own business and wondered where you can find the capital to do so? The Franchise Industry offers many opportunities to borrow money, and many offer low start-up investments, which is especially attractive to a new Franchisee just starting out.

There are several franchise finance assistance programs offered by the US Government. Each is in the form of loan guarantees made to lenders.

Research offered two particular programs that are worth looking into:

SBA (Small Business Association) Loan. This is a great place to check out because the SBA offers favorable terms and recognizes the importance of our nation’s small businesses. They provide competitive rates, no points, and no penalties for pre-payment. As a potential franchisee, you may qualify for an SBA loan, based on criteria such as number of employees, business size, and annual sales. Theirs is a simple and straightforward process as compared to other options.

USA – Department of Veterans Affairs (VA)
Veterans. The Veterans Financial Franchise Initiative (VetFran) was initiated in the early 1990s as a way for franchisors to thank members of the military for their service during the Gulf War. VetFran allows service members to pay only 10 % or less of the total initial investment cost of purchasing a franchise. That difference between the required franchise fee and what the franchisee has available to invest is contributed by the participating franchisor as part of an “initial earned equity.” Many International Franchise Association (IFA) members participate in the program. The franchisee must be able to qualify for a SBA 85% loan guarantee package. Now VetFran is limited to franchises with initial investments that are $ 150,000 or less.

401k or Retirement Fund. Initially this may appear as an unlikely or scary source to tap. However, of the overall high success rate of franchising, this source can actually be a wise business move, as you are re- investing the funds, not withdrawing them, which, of course, would involve stiff tax penalties. Learn more about using your 401k to buy a franchise

Other Investors. A viable option may be with other investors, especially if the franchise your investing in – comes with a very popular brand, where the likelihood of success increases substantially. As an example, Cruise Planners/ American Express are an internationally known #1 brand and only enhance the opportunities for success with Cruise Planners. Be sure your proposal includes your business plan and specific goals, along with prior accomplishments from other business ventures or past employment.

Family/Friends. Perhaps a well-capitalized relative would be willing to loan you the money for your franchise business. Whether it is a friend or family member, caution must be taken in making the deal and every part of the agreement should be done in writing and legally to assure no issues crop up later possibly ruining family relationships or friendships.

Learn more about franchise financing options in the FBR Franchise Finance Center

 

 

Guest blog provided by Dan Hicks, Director of Franchise Development at Cruise Planners. Learn more about franchise opportunities with Cruise Planners

Molly Rowe

Molly Rowe is the former Editorial Director at Franchise Business Review and reported regularly on top franchise opportunities and the latest trends in franchising. Molly oversaw Franchise Business Review's research and the publishing of FBR's annual Top Franchises Guide, Top Low Cost Franchises Guide, and many other specialty franchise reports.

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