What Are The Best Franchise Funding Options For Franchising A Business?

One of the most crucial aspects of starting a franchise is funding. The amount required to purchase the rights to operate, the lease agreement, and the initial inventory depends on the type and size of the franchise. Aside from the important questions to ask before buying a franchise, finding suitable sources of funds is also crucial. Below are the top ten franchise funding options for securing the capital you need for franchising a business. 

1. Franchisor Financing Options

Sometimes, people hesitate to ask the mother company about financing and loan options. They think borrowing money to fund the business will leave a negative impression. In contrast, the franchisor should be at the top list when seeking funding. Did you know that almost every franchisor in the United States provides some form of debt financing? Likewise, many employees give some form of debt financing. In some cases, franchisors offer no principal loans or financing plans for leasing equipment. 

2. Conventional Banks and Credit Unions

Using a bank or credit union for franchise funding will see the advantages of partnering with an established franchise. You’ll need to strengthen your credit and prepare a comprehensive business plan to have a shot at this route. So prepare all your financial paperwork ready and apply at a bank or  at a credit union. Likewise, if you can invest some of your money into the deal, let’s say about 20 percent, banks will be more favorable to you. 

3. Small Business Administration or SBA Loans 

SBA loans are primarily available for franchisees when qualifications are met. SBA loans have smaller down payments and longer repayment terms than traditional bank loans. This option is ideal for those just starting a new business venture. 

4. Business Partners 

It might take two parties to make your franchise dreams come true. Finding a business partner to front you some money can be a suitable option. Yet you have to set guidelines on who will run the business, manage the employees, and split the profits. Failure to formulate concrete plans can turn the partnership into a business disaster. Another alternative is to find a venture capitalist or angel investor willing to help you with starting capital. 

5. Home Equities 

Using the home as collateral has become a preferred funding methodology for franchise ventures. All involved people to discuss and decide how much money is needed to keep the business running. 

6. Stock Assets 

Stocks, mutual funds, and bonds can lend with the money to finance the franchise or cash toward a loan offered by a lender. Before you use these assets, ensure that they’re not a part of an IRA profit-sharing product or other qualified plans.

7. Retirement Funds

This method allows you to use your 401(k), IRA, 403(b), or other qualified retirement accounts to buy a franchise. It has no penalties, upfront taxes, or debt. It can also be used as the capital injection required for SBA loans.

8. Crowdsourcing

Many people have considered the crowdsourcing era for funding almost anything. It might sound funny to ask strangers to give you money for your franchise. It is an alternative if other funding options don’t work well for you.

9. International Franchise Organization

The International Franchise Organization (IFA) aims to provide resources and programs needed to find a franchise to own. The IFA also provides initiatives to encourage men, minorities, and other people interested in franchising.

10. Borrowing from Friends and Neighbors

One of the top advantages of borrowing money through this route is that you can establish payment plans with family and friends that fit better into your finances. You can also quickly amend the payment plan when your financial situation changes.

Conclusion 

Now that you’ve identified the popular franchise funding options, it is time to start working on your preferred choice. Again, consider the funds and processes required to ace the franchising business.