4 Ways to Finance a New Franchise Business

Many entrepreneurs and businessmen invest in franchises as doing so is a proven-effective way to generate profits. If you intend to share a business’ best and lucrative practices and you want to be in that business yourself but not on your own, buying a franchise will be advisable.

Franchisors (businesses that own and sell franchises) welcome franchise buyers into their teams. They are dedicated to franchisers’ success since they can succeed as well when the franchise owners succeed. If you invest in a new franchise, you can expect guidance from the franchisor if you need expertise regarding finances and operations.

Franchise systems use proprietary tools along with effective systems to make use of time-tested business techniques. The goal is to achieve positive and ideal financial results. It is also advantageous that you will not have to invest money and effort anymore to building a brand of business. Through investing in a franchise, you will be authorised to perpetuate or operate a business using an already popular or trusted brand.

Thus, you can never go wrong with franchising. However, it is not cheap. Investing in a franchise can be a costly endeavor. If you think your financial resources will not be enough to cover requirements, there are different ways to finance a new franchise business. Here are four of the most commonly used options.

1. Obtain traditional commercial bank loans. There are many lenders that offer and provide traditional commercial bank loans. In general, most of those financial products require collateral or security. You just need to prepare and submit required business documentations to assure the banks that your business will be able to sustain and repay the loan amount. Many non-traditional loan providers also offer and provide similar products to businesses.

2. Get unsecured loans or lines of credit. Unsecured loans are also available to businessmen who may need extra capital instantly. The difference of these products to traditional bank loans is that no collateral or security is required. However, you will also be asked to prepare and submit required documents, which will assure the loan provider that lending money to your business endeavor will not be too risky or that your business can be able to make repayments. It is also wise to get lines of credit that can be used anytime your business needs cash.

3. Use leverage of existing assets creatively. Do you have significant assets? You may use some of those as leverage for financing. There are ways to do so. You may use the assets as security to loans or you can sell some to gather the amount you need. Explore many other creative options.

4. Seek financial assistance from an ‘angel investor.’ That person is open to lending cash in exchange for convertible debt or ownership equity. He or she can be a family member, a relative, or a next-door neighbour who might be willing to invest about $10,000 to $100,000. Angel investors usually lend money to profitable and solid business opportunities like franchises.

Andrew holds a BA in Business Administration and has extensive experience in small business Loans. Over the last 3 years, Andrew has been a regular contributor in business blogs.