The Best Types of Franchise Financing
Deciding to open a franchise can be the first step in a profitable enterprise. Making the decision is certainly worth celebrating, but the overwhelming concern of how you will acquire franchise financing can be quite stressful. There are several financing options available, but the one that is the best fit for you will depend upon your circumstances.
The Parent Company
The first source you should consider for financing is your franchise’s parent corporation. Corporations often have incentive programs in place for fledgling franchises in order to assist them during the startup phase. These incentives may take many forms. For example, your company might offer to defray some of your costs if you open your franchise in an unconventional locale. Furthermore, parent companies are sometimes partnered with low-interest lenders, making it easier for you to acquire franchise financing at an affordable rate. At the very least, your parent company is likely to be able to offer you helpful guidance about getting your franchise off the ground.
Bank and Franchise-Specific Loans
The most traditional route you can take to finance your franchise is the classic bank loan. If you have good credit and want to open a chain for a well-known franchise, then chances are good that a bank will agree to finance your business. However, the process of applying for a bank loan can be time-consuming. If you want to move forward more quickly, then you might want to seek out a franchise-specific lender. These are lenders who invest exclusively in up-and-coming franchises. The professionals who staff these groups have advanced knowledge about franchise financing, so they often have excellent advice. However, they also tend to charge higher rates than banks.
The Small Business Administration has a loan program that encourages banks to invest in small businesses. The SBA guarantees the investor a significant sum of money even if the franchise becomes unable to pay its fees. Since this minimizes risk for investors, they are more motivated to provide financial backing. To find out if your franchise would be a good fit for this type of loan, check the SBA guidelines.
There are several government incentive programs in place that are meant to promote business growth. Some of these programs provide grants to women, veterans or minorities. Others offer tax breaks to new businesses. It is worth looking into these programs to find out if you qualify for any of them.
In order to make the smartest decision about your franchise financing, you will have to do your homework. Once you have narrowed down which route would be the most beneficial to you, you can get started with putting your business plans to action.