Like any type of business, starting a franchise requires capital—that is, funding. However, franchisees-to-be have several ways to raise that capital. This article goes over some of the best methods.
Assistance from the Franchisor
In some cases, franchisees can apply for funding from the franchisor (the parent company of the franchise). In fact, Eddy Goldberg of Franchising.com recommends making your franchisor your “first stop.” Franchisors often have agreements with lenders than can ease and expedite the process of receiving a loan. Others may even “provide debt financing themselves,” per Goldberg.
If your credit history is strong enough, you may be able to obtain funding via a traditional loan from a bank or credit union. Collateral helps in the application process as well, as does opening a franchise that is part of a well-known, established brand.
The Small Business Administration (SBA) may be a source of help, too. The SBA does not directly make loans, but it does work with lenders and borrowers by backing loans. That reduces the risk for the lender, in turn making it more palatable to extend financing to a borrower. Many franchisors have preexisting relationships with SBA-approved lenders, so be sure to ask if that is the case with your franchisor.
Your Own Funds
Some franchisees turn to their own resources to fund the opening of a franchise. Home equity loans are one way to do this. Another is through the use of funds from a retirement account, which can be accessed through the Rollovers and Business Startups arrangement. These methods do have drawbacks, however: If the new venture doesn’t pan out, the effects on your long-term financial health can be severe.
Today, borrowers have more options than ever when it comes to alternative lenders. These often offer relatively fast approval processes, and many facilitate franchise funding.
Whether you need financing for a franchise or another business venture, Star Capital USA has a variety of options available. To learn more, just get in touch!