Many people dream of starting their own business but are not sure where to start. One of the best ways is to open a franchise. This allows you to work with a proven business model under an established brand that customers already know and love with support from the franchisor to ensure your success.
Unfortunately, this isn’t free. You will be required to pay the franchisor several different fees. Some of these will need to be paid up-front and others will be ongoing. Either way, unless you have a substantial savings account, you’re going to need a loan to finance your franchise.
In this blog, we’ll explain a few loan options to help you with this.
Six Loans to Finance Your Franchise
If you are looking for funding to finance your franchise, you have several options:
Online Lenders
Online lenders offer a quick and convenient way to obtain funding, especially for those who do not qualify for traditional loans. The primary benefit of working with an online lender is their experience in this area. Even though the entire process is online, you will be able to speak with a live agent that can walk you through the process and address any of your questions or concerns.
Online lenders also offer working capital and term loans for existing franchise operators that have a good business history.
SBA Loan Options
The SBA, or Small Business Administration, offers a couple of loan options that can help you finance your franchise. The SBA works with lenders to provide the funding- the money does not come directly from the SBA. Instead, they guarantee a portion of the funds to reduce the risk to the lender in case the borrower defaults.
SBA 7(a) Loan
This is the most common loan program for entrepreneurs and is ideal if purchasing real estate is part of your franchise plans. It can also be used for short- or long-term working capital, purchase equipment, and refinance business debt. This loan tops out at $5 million.
It is important to note that several eligibility criteria must be met to qualify for this loan program.
SBA 504 Loan
This is a long-term, fixed-rate option with a cap of $5 million, that can be used to finance major fixed assets that create jobs and support growth. These loans are used to purchase or upgrade buildings or land. The SBA works with Certified Development Companies, which are local partners that are certified and regulated to promote economic development, to provide these loans.
Franchisor Financing Assistance
Some franchisors offer financing or special assistance that can help you finance your franchise. However, it is essential to note that this is the exception, not the norm- not all franchisors offer to finance your franchise fees. You will need to do your research to determine whether or not they offer to finance.
Crowdfunding
In recent years, crowdfunding has become a popular option for raising the funds to start a business. This is the process of using an online platform to collect donations from people who want to help. However, to be successful, you will need to have good communication skills and get your information out there so that people know where to go to make their donations.
You can also ask family and friends to help you out. However, chances are they will want to know more about your business and how you plan to pay them back if you don’t succeed.
Traditional Loans
Banks and credit unions offer a variety of loan options to help you finance your franchise- but typically have several criteria attached that must be met. If you have a poor credit score/credit history, low cash flow, no business plan, etc, you may not qualify for this type of funding.
Ready to Finance Your Franchise?
If you are interested in learning more about how to finance your franchise, contact the professionals at Scarlan Capital Group. We have the experience and expertise to help you get the funding you need.
