How To Find A Good Financing For Your Small Business Franchise

Are you in view of or have already decided to start a small business franchise, you possibly will be wondering what the next steps are to get your small business up and running. While there are quite a few things needed for your small business such as a good business strategy, well thought-out business plan and perhaps a team of partners and employees, the biggest difficulty you’ll generally likely face will be financing. There are quite a few ways to finance a small business as well as small business loans, groups of investors or even financing exactly through the franchisor, and while each option will get you to the same end result of opening your small business franchise, it’s important to weigh the pros and cons of each form of financing. With that said, let’s take a more in depth look at a few of the most standard ways to obtain financing for your small business franchise.

I am assuming you don’t have hundreds of thousands of dollars tucked away somewhere that you’re going to use to start your franchise, a small business loan is going to be the most familiar form of financing for your franchise. The good news about getting a loan from a bank is that most banks and lenders will be more willing to award loans to small business franchises than to other types of small businesses simply for the reason that facts show that small business franchises are more likely to succeed. While there are no guarantees in any business, statistics have shown that over the course of ten years, non-franchise small business opportunities see a trivial success rate of less than 20% while small business franchises succeed 94% of the time. Banks and lenders are all about numbers and statistics, so seeing accomplishment rates like these will not only help you get a loan even if you have been turned down for a traditional small business loan, but you may also be able to negotiate a lower interest rate or a higher initial amount on your loan if it’s for a well established franchise.

A good alternative to getting a small business loan from a bank or lender is to put all together a team of investors to raise the initial funds needed to start your small business franchise. This may possibly be just one person or a team of eight or twenty people, but either way you’ll need to be aware of a few of the pros and cons of having investors. Depending on how you organize your business proposal, your investors will get a percentage of the profits that the business makes

and potentially a percentage of the gross income whether your company makes money or not. More or less, your investors can be thinking of as partners or shareholders. In the typical investor situation, your investors will take a high percentage of the profits until they recoup their investment and then will continue to earn money (although it will be a smaller percentage) indefinitely, assuming the business continues to make money.

An example of this model working well would be if you and a few friends or relatives went in on the business together and plan to all contribute time and money to the business. If you are the type of person that wants total control of the business and you don’t like the idea of sharing your profits with your investors, then the investor model probably won’t work well for you. If you do choose to go with a group of investors, make sure that you carefully construct your business proposal so that it protects you and your business financially. You want your investors to be able to make money off of the business, but you don’t want the business to suffer financially or have cash-flow problems because you’ve agreed to pay your investors a set amount each month despite the success or lack thereof of the business.

In conclusion, a third option that is in keeping more and more prevalent with small business franchises is direct financing from the franchisor. Not all franchisors offer this type of financing, but many larger franchisors are beginning to see the benefit it brings to them and to their franchisees. The basic protocol here is that the franchisor would evaluate the franchisee’s that’s you credit and consider a few other factors and then make the decision to finance. From there, you would receive the money to cover the franchise fee and all of your startup costs plus you would have the option to negotiate more money to cover the first few months operating expenses. This profit the franchisor because it allows them to sell franchises to more people and they not only make money from the franchise fee, but they will also make money from the interest paid by the franchisee each month.

The benefit it provides for the franchisee is that this is often one of the easiest ways to get financing for your franchise and the franchise will in addition be able to produce a much more accurate financial picture than the bank would be able to give of what’s essential to own and operate their specific franchise.