4 Sources of Funding for Franchisees | Evergreen Franchise Advisors

Most people who decide to launch a franchise are chasing dreams of financial independence. That can make finding financing to get started discouraging, since for many it seems the only option is going into debt, sometimes with a high interest rate.

Fortunately, there are some alternatives that our expert advisors can explore with you. Some even come interest-free, so the burden is lighter. Read on to learn more about where the money for your franchise could come from.

Franchise Funding Options

Franchisor Assistance. Companies that offer franchise opportunities typically have capital reserves and access to funding sources the individual franchisee may not. Plus, they have an interest in your success. You’re offering to take on much of the risk for opening a new territory to the business and your venture will carry its name, so it will want you to be able to represent it well.

Larger franchisors have financing programs that either offer you money from their reserves of favorable terms from banks. In either case, you’ll typically need to pay the funding back, but at better terms than what you’ll get from a bank on your own. That money may be usable for everything from franchise fees to equipment purchases.

Your Capital. Even with the best franchises, such as the ones we work with, you’re taking on a risk when you start your own business. Because of that, we don’t recommend people drain their savings or mortgage themselves into dangerous territory to go into business. If you’re in that position, there’s a good chance your application to franchise won’t be approved, anyway.

However, if you’re financially secure and have the ability to put money toward your franchise fees and startup costs, that’s typically a good decision. Doing so lessens your debt load, which saves you money on interest payments over the long run. It also puts you in a better position if something unexpected should happen and your income slips because it means your monthly payments will be smaller.

Loans. As we already said, we don’t recommend people put themselves into financial danger to open a business. However, most franchisees take out loans to cover starting costs. If you choose this route, you’ll need to be prepared to show your bank documentation to justify its loaning you that money, including a business plan and revenue projections, which your franchisor will be able to provide.

The most favorable terms on this financing typically comes from Small Business Administration (SBA) loans, which are partially backed by the federal agency. The SBA guarantees some of the loan amount, which reduces the exposure to the lending institution. Most banks use that protection to provide interest savings to borrowers.

Partners. If you have some of the money for starting a business but not all of it, you may want to consider bringing on partners in your venture. Whether that means friends you’ve talked for years about starting a business with or others interested in operating the specific franchise you’re considering, spreading the expenses can help.

However, it can also complicate things because it involves deciding whether each partner’s return will exactly correlated with his or her investment. While many people think about that when it comes to the initial investment, there may be hurt feelings if one partner is consistently contributing more but the proportion of his or her cut isn’t reflecting that.

For help considering your franchise opportunities and the intricacies of funding your new business, contact Evergreen Franchise Advisors today!