Becoming part of a franchise offers a great opportunity to own and operate your own business while benefiting from an established brand and support system. Still, like any other business, you should secure funding to set up your enterprise.
Obtaining the financing to become a franchisee can be a crucial challenge. Fortunately, there are avenues available to finance your franchise dream.
Traditional lenders
Many franchisees acquire financing through a traditional bank loan. With a strong credit history and a well-crafted business plan, you may convince a lender to approve your loan. Like other business loans, you should expect to offer collateral to secure financing.
SBA loans
The Small Business Administration offers loans to traditional businesses and franchisees alike. These loans generally have lower down payment requirements and longer repayment terms compared to traditional loans.
According to U.S. News and World Report, the SBA offers three major loan programs. A 7(a) loan can fund you up to $5 million for uses such as real estate and franchise fees. A 504 loan lasts for a long period and can finance equipment, real estate or property improvements. A microloan offers up to $50,000 to pay for smaller expenses such as inventory, supplies or working capital.
Franchisor funding
As a franchisee, your franchisor may help you get financing. Many franchisors have associated lenders who are more likely to finance the brand. However, a franchisor may also fund you through a loan or by partnering with an outside financial company. In addition, the terms may be generous to you since the franchisor wants you to thrive.
These are not the only options, but they are the most common for aspiring franchisees. Consider your funding avenues carefully so you know which is the best fit for your priorities and resources.
