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Published On: Thu, Sep 27th, 2018

How to Finance a Franchise

Franchising is a method of business expansion. It relies on a licensing relationship to distribute goods and services. The company or person who gives the license to the third party specifies how the products will be offered and what business model will be used. The franchisor also gives the brand and support necessary.  The franchisee gets to decide where they locate their business, quality control, training, and marketing strategies.

It is worth noting that different countries and states will have a twist in how they define a franchise. For example, some states may provide for offering a community of interest. Whatever the case, the two parties must work under a contract. Investing in a franchise is a great opportunity, but one needs to do their homework to find the franchising business.

photo/Gerd Altmann

However, the work does not end at finding a business that one would like to partner with. They must also find financing for the franchise. Like with other businesses, finding the money can be a headache. However, you have a couple of options for financing a franchise business including:

Franchisor financing

You must first talk with your prospective franchisor if you need funding to buy a franchise. Many companies that franchise offer custom financing solutions that can help the franchisee. This method of financing offers many benefits. For example, the franchisor becomes an all-under-one-roof option for you. This means that you not only get the money but you also get discounts on resources and equipment the franchisor offers.

With franchisor financing, you do not have to worry so much about convincing them of the worth of the business. After all, they have been in the industry and they know it in and out. However, each agreement will be different so be sure to check details like what deferred payments may mean.

Commercial bank loans

Another way you can get money for your franchise is getting a bank loan. Here, the bank offers a lump sum that you repay with interest over time, in installments. The bank will review your personal credit history and your business to determine your creditworthiness. Overall, you can assume that if you have a strong financial history, you will get better terms and interest rates.

Alternative Lenders

If you want to fund the franchise fast or you want to top-up the money you have, you can look for alternative lenders who offer services for financing a franchise business. Typically, these lenders have less strict requirements and short turnarounds. You also get more loan options but this convenience may cost you. Alternative lenders collect more hefty interests than banks.

Crowdfunding

If you are unable to get franchise financing or a bank loan, you could try crowdfunding. Here, you could set up and promote a personal page to crowdfund or you could look for help from organisations that work towards that end. There are also websites that are made for such endeavours. Crowdfunding also comes in handy when you have an issue with your financial history.

Friends and family

While one may shy from borrowing money from family and friends, this is a common way people use to finance franchises. You can also ask for a gift or bring in a family member as a business partner. However, be sure that the terms are clear. Disagreements can be so bitter as to break family ties and relationships with friends.

How a franchise lawyer can help

Financing a franchise business is not an easy task. Whichever option you go for, there will be contracts involved. A lawyer is able to watch out for your best interests. They can advise when the terms of a contract will not serve you well in the long-term. They are also familiar with the industry, affording you the benefit of experience. For example, an attorney will note if there is a hidden clause in the fine print that could relinquish your business to the lender on a technicality. If you want to learn more about financing and franchising, contact a franchise lawyer.

Author: Navneet Gandhi

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  1. […] you understand how to finance what you need in the business world, you set yourself up for […]

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