Know How To Finance A Franchise

Dec 27th 2015 at 11:09 PM

Unless the entrepreneur has his own personal fortune which he can invest in his upcoming franchise or has an option to fund the capital, a franchise cannot start. Starting a franchise takes a lot of funds and you need to have a clear understanding on how you can fund your franchise. The investment of funds properly is a key area, which will determine how successful your franchise will be. If you wish to know how to finance a franchise there are certain factors, which you should consider.

Ratio of Personal Net Worth and Loan

A franchise is a highly individual business and most entrepreneurs tend to raise capital by refinancing their homes, or by taking a home equity loan. However it is the hardest to get started when there is a need to raise a huge loan. This is a major problem because banks do not have much of a profit margin unless they charge a high rate of interest in these cases. Personal net worth normally has to be far larger than the loan amount or the loan will usually not be sanctioned.

This makes the process a little bit difficult. Various countries offer certain government-supported business loans if the person taking the loan has the needed qualifications and is a qualified entrepreneur (e.g., SBA loans in the U. S.) It is vital that a starting franchisee builds a healthy relationship with a successful franchise and strong banking relations with a licensed lending institution. A stock loan is another option, although if you are not well versed in the stock market, you may want to reconsider.

Credit History

Credit history for conventional financing also needs to be in proper shape if you want a loan. The credit history makes sure that you are able to gain the confidence of the loan giver. It will also show past records where the money has been paid off in a systematic and proper way.

Building the Cash Flow

Cash flow is another aspect of franchise building. Consider all of your options when it comes to cash flow: for example, if you have a retirement fund you can borrow on it or cash it out, although many people tend to avoid doing this since they are not sure if they will succeed. However you can go through this process if you are confident that your franchise will make it big. There is of course risk involved with this step, but it might be less of a risk than trying to open a brand new business without the support of the franchisor.

You can also use credit cards. This works around the fact that the more cash you acquire at the lowest rate possible, the better, so if you have high allowance, low-rate cards, this may be an option. Some may wish to go to their family members and ask them if they wish to finance your plans. You can give them benefits in the form of a share of profits, too. But make sure that the funding is conducted by a fully licensed and vetted lending institution, since that will make it far less likely that you will be cheated and that unresolvable disputes do not arise along the way.

These are some of the factors that you need to remember when you are trying to get franchise financing done. Visit A. B. Nicholas (abnicholas.com) if you'd like to know more.

About The Author


A. B. Nicholas (ABN) is a privately held Washington D.C based finance sourcing firm for the franchisee and commercial real estate markets. They are an exclusive partner with some of the most respected franchise brokering, business brokering and commercial real estate brokering organizations in the U. S., as well as several major U. S. based top-tier licensed lending institutions.


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