Transparency Relationships Accommodate Meaningful
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Franchisees usually have more than one way to finance the purchase of a franchise and may even be able to combine funds from different sources to achieve the necessary capital. Options include:
In some cases, franchisors may offer financing directly through the parent company, but more commonly, they partner with preferred lenders who administer the loans to their franchisees.
Franchisees can apply for a commercial loan with a bank of their choice. Approval usually requires a good credit rating and a detailed business plan.
Because the federal government backs a portion of SBA loans, they generally have more favorable interest rates and repayment terms than commercial banks loans. Type 7(a) loans are ideal for new franchises, compared to type 504 loans, which have more limitations.
If a franchisee is unable to secure a commercial bank loan or an SBA loan, alternative lenders may be an option. Their approval process is faster and less stringent than that of traditional lenders, but the interest rates are generally higher and the repayment periods are shorter.
Savings accounts, severance packages from previous employers and home equity and retirement savings plans are sometimes used to help finance a franchise. Leveraging personal assets, however, can jeopardize financial security in the future.
ROBS is a method of withdrawing money from a 401(k) or other retirement savings accounts to fund a new business without incurring penalties. Rollovers are risky if not done correctly and although legal, the IRS considers them questionable.
Lacking few other options, entrepreneurs may attempt to raise money via online forums. Investors typically receive early access to products, shares in the company or other perks in exchange for their investment.
Borrowing from friends and family is an attractive choice for those who have poor credit ratings or can’t afford to pay interest. This type of funding can negatively impact personal relationships, though, especially if the venture isn’t successful.
Entrepreneurs who qualify for franchise financing generally have positive net worth, or more assets than debts. Many franchisors will ask to see a personal net worth statement before seriously considering any investor. They also may require the franchisee to have a minimum amount of liquid assets at their disposal to cover start-up costs, living expenses and other financial obligations until the business becomes profitable.
When you’re looking to finance a franchise business you may want to reach out to your franchisor to see if they have any available options to help with your financing needs. Regardless, you may still want to shop around because you may be able to find cheaper options on your own.
Alternative lenders generally have financing options for franchises that may assist with your franchisor mandated updates, at a lower cost. Once you have determined the type of financing you’re looking for and the lender you would like to work with, you will have to complete an application, and provide necessary paperwork such as bank statements, personal credit reports, drivers licences and voided check.
TRAM Funding has access to franchise financing options. To learn more complete our 15-second online application and speak with a business financing advisor today.
When it comes to sources for financing a franchise there are many options available. Options include:
It’s best to consider all your options when looking to finance your franchise to see what products fit your business needs best.
Learn more about different sources of financing that are available to a franchise by completing our 15-second online application.
In order to qualify for franchise financing you’ll have to have a solid credit score, business financials and a minimum of two years in business. For those looking to financing an additional franchise, business owners may be able to leverage their existing franchise to meet those requirements for their expansion.
Find out if your franchise qualifies for franchise financing by completing our 15-second online application today.
All franchises, whether they be high or low-end options, require money on the part of the investor. Those with limited funds might need to wait and improve their financial situation before embarking on a new business venture.
Learn more about different sources of financing that are available to a franchise by completing our 15-second online application.
Franchisees who have good credit history and a business plan may be eligible for a commercial loan with a bank. It sometimes helps to apply with financial institutions that have experience working specifically with franchises and not just small businesses.
Learn more about different sources of financing that are available to a franchise by completing our 15-second online application.
The Small Business Association (SBA) allows investors to borrow up to $5 million for the purpose of opening a franchise or small business. Other lenders may have different limits, depending upon the individual’s credit history and business plan.
Learn more about different sources of financing that are available to a franchise by completing our 15-second online application.
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