Franchise Financing

Franchise Financing Options, How To Find Affordable Financial Backing

During times of economic recession, many people seek to replace their income stream (whether it’s dried up or is slowing to a trickle) with a run at starting their own business. Typically, starting a business from scratch is almost prohibitive; generally, if you can afford it out of pocket, you’re too prosperous to do it out of necessity already! Buying a franchise license is a cost-effective alternative, as you can duck most of the expenses of founding a business from the ground up, and be set up much more quickly.

But even a franchise costs money to start up, and there’s the catch: if you’re starting a franchise during a recession to replace a job you’ve lost or another business that’s weakening, you’re short of funds already. If you can’t afford to pay the up-front costs, you’ll have to get a loan. So, are there loans for aspiring franchisees the way there are loans for entrepreneurs?

The answer is, gladly, yes! In fact, you can see where a loan company sees you as less of a risk of you’re starting a franchised business than if you’re founding one from scratch. Consider, for example, that you’re looking to start an Arby’s restaurant as opposed to starting your own cafe. Arby’s is a nationwide chain that’s been going strong since 1964. You recognized the name instantly just now, and probably thought about a delicious roast beef sandwich while you’re at it. Put yourself in a loan officer’s place: which project would you rather bankroll?

The first place you should start looking for advice for a franchise loan is from the company you intend to franchise from. They deal with this kind of thing all the time, and furthermore they’re in an excellent position to judge the relative success of loan plans based on past experience. Remember, it’s in their best interest to help you - your success is their success!

The second place to look is an SBA loan. SBA Loans are those loans made by traditional lenders, which are guaranteed by the federal government?s Small Business Administration. Here again, the federally financed SBA has a motivation to accept you: instead of taking a gamble on your own (possibly half-baked?) business idea, you’re taking a tried-and-true business formula and adopting it. In addition, the majority of major franchisers also participate in the SBA’s own preferred registry program, making it even easier to “join the club”.

Finally, there are the usual loaning institutions which finance businesses all the time. Include in this government programs for economic stimulation, such as business grants for minorities and women. If you qualify for any kind of financing package that includes a small business grant, you’re nearly in business already - it’s just a simple matter of filling out the paperwork. With a grant to back you and a minor loan to take up the slack, combined with assistance from the franchising company, you can be open for business in a month and making a profit only a couple of months later!

In seeking a loan-financed franchise business, it is good to prepare some documentation about yourself and your plans. As always, they will check your credit standing, your existing collateral or capital, and the feasibility of your business plan. It really helps here to pick a franchise that has a proven track record. Especially, pick a company with name-brand recognition right from the start. Gather some data on existing franchise locations in other areas; perhaps even interview the proprietor of an existing franchise location and ask if your can include their profit report in your loan application information.

If you prepare everything right, you almost can’t miss! Franchises account for one out of every three dollars spent in the American economy, and the other G8 nations aren’t far behind. Franchised businesses have proven themselves to be a thriving income plan, and the enthusiasm for them can only continue as more people take this path to business success.