Financing A Franchise

Financing a franchise can be incredibly expensive and though a franchisee may have the skills, the experience and the determination necessary to make a business successful, unless they can secure the capital they need to get it up and running then their dreams could remain unachievable.

However, there are plenty of options for securing finance that will allow aspiring entrepreneurs to open up their own business. Franchisees do not have to be filthy rich to achieve their commercial goals; all they need is the know-how and the determination to find the right source of funding or the right lender.

In order to secure financing for a franchise, franchisees will have to consider several very important things.

1. Sound Business Plan...

One of these is a sound business plan. Without one any bank or lending institution will be reluctant to hand over their cash.

2. Good Credit History...

Secondly, franchisees need a good credit history. A bad one can impact on a number of things, including securing a loan and signing a lease for space to locate the business. Anyone with bad credit should consult an expert who will help them consider their options.

3. Come up with your own savings...

Thirdly, franchisees must be able to contribute a significant portion of the financing themselves. Most banks will require the franchisee to supply around 40 per cent of the start-up capital.

So where can a franchisee go to find financing?

Well the first thing they should do is examine their personal resources. Family and friends may be able to help by offering a loan, the terms of which may be much better than anything that could be found at the bank.

Banks and speciality franchise lenders should be the next port of call. Franchisees should start with their own bank where they do most of their personal banking, and if this fails they should try further afield. Independent lenders who specialise in franchise lending should also be contacted.

Franchisees unsure of where to go should consult an accountant, particularly one who is qualified in handling the finances of small businesses. A good accountant will be able to calculate the exact amount of capital needed and recommend potential bankers or lending institutions that may be able to help.

Of course the best source of information when it comes to financing options is the franchisor. They may be able to provide financing directly or through a third-party lender, or if not they will be able to point new franchisees in the right direction.