Best Financing Options for Franchising a Business
Running a franchise business of an eminent brand may look lucrative at the outset. However, you need to keep your nose to the grindstone to make it successful. Also, you need to abide by the rigid guidelines of the franchise agreement. Well, do you know the most important thing you need to start and run a franchise? It is quite obvious that you can’t commence a franchise business without sufficient finance. Thus, you need enough money to start a franchise. If you have adequate savings, then it’s great. In case you don’t have any, then there are numerous sources from where you can arrange finance for your franchise. Keep on reading this article meticulously to know the best financing options for your franchise unit. You can use these options and run your franchise business smoothly.
Franchise is an ideal opportunity for those who want to become a thriving entrepreneur. If you want to become a successful franchisee, then make sure you have enough money to run it. You need money to pay hefty franchise fees, ongoing royalty fees, and advertising costs. While looking for a good fit franchise, make sure you plump for a franchise that suits your budget. Also, see if a franchise opportunity can bring you a throng of customers. We would advise you to own an education franchise. The educational section is amongst those business sectors that are capable of surviving the jolts and bolts of the business environment. You just need to have a good intellect to use the money appropriately in a franchise.
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Here are some of the popular financing options for franchising a business:
Many people think that becoming a franchise owner is outside the realm of possibility just because they don’t have adequate money. Let us tell you that there are many sources from where you can easily arrange money. Go through the following points to know about those sources.
- Franchisor financing
If you need adequate funds for your franchise, then your initial conversation should be with your prospective franchisor. Many franchise-based businesses provide bespoke financing options for its franchisees, either through collaborations with certain lenders or by delivering funds directly from the company. This is one of the most prevalent methods of financing a franchise as it has a number of advantages. Thus, there are many companies that provide financial assistance to its franchisees. Well, franchisees at Gold’s Gym, UPS Store, and Meineke reap the benefits of financing opportunities. Seeking help from your franchisor can actually help you fulfil all your requirements.
If you’re working with a franchisor who has their own financing programme, you won’t have to look too far for money. After all, who better knows the industry than the franchisor? They know more about the perils you’re taking and the ins and outs of the business than any other lender. Note that an ideal franchisor will always help you to manage finances for franchise business. So, make sure you are linking with a helpful franchisor.
- Commercial bank loans
A typical term loan from a bank is another popular option for funding your franchise. When most people think of loan financing, they think of term loans, especially if they’ve ever had a student loan or a home mortgage. A bank or alternative lender will provide you a big sum of money up front, which you will then repay in monthly installments, plus interest, over a defined length of time.
When you seek a commercial bank loan to buy a franchise, the bank will scrutinize your business strategy and personal credit history. Thus, your bank will use these documents to determine your creditworthiness. Essentially, the bank is attempting to establish whether or not you can realistically afford to repay the loan you’ve requested, and hence how likely it is that they will be repaid.
- MSME business loan
MSME business loan was introduced in India by the central government in 2018. Government offered this help to entrepreneurs to boost the growth of the business sector in India. Thus, you can raise an MSME loan in just 59 minutes. You can easily raise a loan under this scheme from 1 lakh to 5 lakhs. Moreover, you just need to pay 8.5 % of interest on this loan. Following are necessary requirements you need to fulfil to get a loan under this scheme:
- GST certifications.
- KYC details
- Income tax verifications.
- Ownership related documentations.
- Bank account statements for the last 6 months.
- Alternative lenders
Apart from commercial and MSME loans, you can approach alternative lenders to arrange finances for your franchise. Alternative lenders typically have fewer restrictions and faster turnaround times than traditional loans. They provide a wide range of loan choices, including equipment finance, commercial lines of credit and term loans. However, this accessibility and convenience may come at a cost. Alternative lending products are typically more expensive, have shorter repayment terms and smaller loan amounts than standard loan products. Still, if you need to boost your current finance, can’t qualify for a bank or MSME loan, or need cash urgently to take advantage of a life-changing opportunity, it might be worth it.
Crowdfunding is the most creative method to arrange finances for your franchise unit. Thus, you can create a page on a social media site and ask people to fund your business. Also, there are a plethora of websites that crowdfund specific industries. They lend funds to entrepreneurs who are in dire need of money. Note that crowdfunding is the best source to arrange finance if it has become literally difficult to arrange finance from any other source. From here you can deduce that you have various options to arrange finances for your business.
- Friends and family
Believe it or not, some of your relatives and close friends can lend you money for financing your business. These types of loans are often quite affordable, whether you borrow money outright, ask for a gift, or bring a friend or family member on as a business partner. However, some come at the expense of strained family relationships and lost friendships.
If you do decide to borrow money from a friend or family member, make sure you have a contract in place that spells out the terms of return and your expectations. Breakups and arguments will be less likely later on if everyone understands the agreement before signing. Well, you can use this option to finance your coaching franchise.
Buying a franchise is a great way to get your feet wet in the business world. Thus, you get to try your hand at being a business owner while benefiting from the support of a huge franchiser.
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