In the United States alone, there are 745,290 franchises. And the number keeps growing.
If you’ve always dreamed about opening your own business, a franchise it’s just what you need.
Of course, it’s not as easy as it sounds. But if you find the right franchise financing, you can make this happen.
Check out this guide for some financing tips to open your franchise.
Create a Business Plan
If you want to successfully open a franchise, the last thing you want to do is approach a lender before you have a strong business plan. A business plan sometimes can make or break your franchise loan.
Before you start the business plan, you must figure out your net worth, assets, and your credit score.
Get started on your business plan by including a complete study of the franchise you want to build. Include cost and analyses projections, estimate the capital you need, and indicate which skills you possess to be a successful franchise owner.
Also, include a complete credit report and a list of your bank statements.
Talk to an Expert
Before you move forward with opening a franchise, you should talk to someone who knows the game.
Talk to a specialist who has opened a franchise before. Also, seek a franchise funding specialist who can look over your application and offer you some advice.
These specialists also have lots of connections.
Learn All the Costs Associated with Financing
Like opening any business, opening a franchise comes with many costs such as real estate, equipment, inventory, and hiring staff. However, franchises have other fees that are associated with the franchise.
Learn about these fees so you take these expenses into consideration.
Almost all franchises will charge an upfront fee to start up the business. This fee is non-refundable and you will have to pay it once you get approved to open the franchise.
The fee depends on the type of franchise you want to open, but for the most part, it’s a few thousand dollars. The most expensive franchise fees are often imposed by hotel chains, up to $75,000.
Advertisement and Royalties
One of the great things about franchises is that they provide you with the advertisement. This is great news for those who don’t know much about how to market a business. You will have to pay a percentage to the franchisor every week for advertisement fees.
You will also have to pay the franchisor for royalties. The royalties depend on the franchisor. Most of the time they’re a percentage of the sales so you don’t have to worry about paying a flat fee.
Look for Places to Finance Your Franchise
Once you have everything you need to open a franchise, you need to seek financing. Financing a franchise sometimes works a bit different than a regular business.
Seek the Franchisor
The first place you need to look for financing is the franchisor itself. Depending on the franchise, some might the new franchisees to franchise the loans.
Most franchises disclose whether or not they offer franchising financing. If this is the case, you need to read the terms to decide if it’s something that might benefit you.
Keep the franchisors financing in consideration until you compare it to other ways to finance.
Check a Traditional Loan
If you want to open a franchise, you can still go the traditional loan route. You don’t have to limit your options to franchise specific loans.
Successful franchise owners have applied for a loan through a traditional lender.
Keep in mind, however, traditional finance lenders and banks are more likely to finance to well-known franchises. They take a smaller risk on franchises that have a proven successful record.
If you don’t have collateral, you might not qualify for this type of loan.
A Franchise Financing Company
There are some financial institutions that specialize in financing franchises. These institutions do either one of two things. They either connect potential borrowers with lenders or they offer to finance themselves.
SBA loans are a product offered by the Small Business Administration and help new businesses obtain financing. SBA loans offer a type of backup and guarantee for lenders — it’s a guarantee their money will be safe if they lend to you.
As a new franchisee, you can apply for an SBA loan.
If you can’t get a loan for your franchise through the traditional route, there are alternative lenders.
Let’s say your problem is your credit score, then you can find lenders who are not as strict. The only problem is you might have to pay higher interest rates.
What if You Get Rejected
Opening a franchise is an exciting venture, but there’s a high chance you will get rejected at least by one lender.
If this happens to you, it doesn’t mean you will never open a franchise. Take your time to understand why you got rejected.
Let’s say you got rejected because your credit score was not strong enough. You should then work on getting your credit score up.
Also, find a lender that best matches your qualifications.
More Useful Tips
Don’t cross off potential money sources. Friends and family might be willing to help you out in your franchise.
Before you approve the franchisor, it doesn’t help to get pre-qualified for a business loan. Make sure you pay off any debts that might weigh down your application.
If you fear your application is not strong enough, consider getting a business partner. Disclose everything with the franchisor and don’t withhold any information.
In order to save on start-up costs, you should try to get used equipment or lease it. Don’t invest money or assets you can’t afford to lose such as your house or your kid’s tuition money.
Tips for Franchise Financing: The Bottom Line
Now that you know where to start looking for franchise financing, it’s only a matter of time until you turn this into a reality.
Want to find the perfect business loan? Check out our site to compare and find the one that works for you.