Opening a franchise can be one of the smartest business moves you’ll make as an entrepreneur. Unfortunately, it can take a lot of resources to get things up and running.
Luckily, you have the opportunity to borrow money from a lender to get started. Not everyone knows where to start.
Let’s take a look at everything you need to know about franchise loans and how to choose the one right for you.
Loans From The Franchisor
It’s not uncommon for brands to have a program in place that helps entrepreneurs start a franchise with their company.
The program’s details and offerings vary from business to business but could include things like lower royalty payment requirements and reduced franchise fees.
Since these programs are put in place specifically to help entrepreneurs, they’re worth considering. In some cases, a company will even help a current franchisee open a store at another location, resulting in a large financial benefit for both parties.
The more tailored your loan is to franchisees, the better. So, keep an eye out for these types of programs before you borrow.
Small Business Association (SBA) Loans
These often serve as the backbone for entrepreneurs looking to open their own company (whether it’s a franchise or not).
While they’re an attractive option due to lower interest rates and high limits, they can be difficult to secure (and have plenty of rules you need to follow).
For example, SBA loans require you to prove that you weren’t able to secure a loan from conventional lenders. As you may expect, these reasons shouldn’t be due to poor credit, repayment history, etc.
The application and approval period are both notoriously long. Additionally, you may still be required to put down collateral even after the extensive application process.
If the company you’d like to work with doesn’t have a franchise program and you don’t want to jump through the hoops of getting an SBA loan, then a commercial loan is likely what you’ll pursue.
While there are still a few requirements to keep in mind (good credit, collateral, etc.), you shouldn’t have any trouble negotiating the sufficient amount of funding that you need.
To help make your life easier down the road, there are commercial loan lenders who have plenty of experience working with franchisees. Large banks often have commercial loan franchisee programs with interest/payment plans tailored toward entrepreneurs of this breed.
Smaller institutions also frequently specialize in a specific industry for their franchise loans. For example, it’s not uncommon for a small venture capital firm to provide franchise loans only to those looking to open a restaurant.
Franchise Loans: Final Thoughts
It can seem difficult to choose the right one, but the information above will help you make an informed decision that will put you on the right path.
Then, you’ll be able to focus on growing your business and attaining your financial goals.
Want to learn more about loans and financing? Our Resources page has all the info you’ll need.