Best Business Funding Options For Franchise Owners
To make a franchise business successful, you will probably require funding. This means you will need to go out and find the best source for your business funding needs. The most common places for finding business funding are banks, financial institutions, and lenders.
Micro loan franchises offer an attractive opportunity for entrepreneurs who want to own their own business and make a difference in their community. This franchise model offers the following advantages:
- A low-cost investment compared to traditional franchises.
- They can help others by providing them with loans when banks won’t.
- The satisfaction of helping small businesses grow and succeed.
- Many options for customization.
As a franchise owner, you have access to all the opportunities and benefits of owning a business. However, you also experience the same challenges as other small business owners, including cash-flow issues and equipment financing.
Whether it’s a new location or an existing one, you’ll need equipment to operate your business. Inventory and equipment are two essential assets in a franchise business. Without them, you can’t open your doors, much less operate a successful business. When buying or upgrading inventory or equipment, franchisees have several options for paying for them, whether it’s opening day or down the road.
Term loans are a traditional choice for franchise owners. These funds are typically used to acquire real estate and equipment, augment working capital, and finance other project costs.
Borrower requirements are more stringent than many other forms of financing due to the more extended repayment period. A term loan is usually repaid over five years or more.
Term loans typically require a higher down payment than other business funding options, such as SBA loans, because they have a lower risk profile for lenders. The current minimum down payment for a term loan is 20 percent. You can qualify for a term loan with less than perfect credit, though your interest rate will be higher.
Franchise Line of Credit
If you are considering a franchise opportunity, factoring in franchise costs is essential in the process. According to the International Franchise Association, opening a franchise can range anywhere from $60,000 to $1 million, with the median being around $350,000. Raising this kind of capital can be a challenge for many businesses and startups. This is especially true for new franchise owners who have not yet earned any revenue from their new business.
Fortunately, a franchise line of credit may be able to help you get your business off the ground. A franchise line of credit gives you access to funds quickly when you need them most — and even more importantly, it gives you access to working capital before your business has made any profit. This allows you to start earning money as soon as possible by covering all the costs of setting up your business and opening your doors.
If you’re a franchise owner, an SBA loan is an excellent place to start when you’re looking for a financing option.
The Small Business Administration (SBA) doesn’t offer loans directly. Instead, it guarantees loans from third-party lenders. If the business defaults, the government covers some of the loss. The guarantee allows banks and other lenders to offer better terms to small business owners who might otherwise be unwilling to take on risk. SBA loans are available for established businesses and franchises and new companies that have been in operation for less than one year.
The most popular SBA loan program is the 7(a). Under this program, the SBA sets guidelines for loans made by its partners, but each lender can apply those guidelines differently. Some lenders may not like your credit score or debt-to-income ratio, but others might be more lenient. If you work with a lender with experience with small businesses and franchises, you may have better luck getting approved for an SBA loan than if you go to a less experienced lender.
Secured and Unsecured business loans
There are two main types of loans available to businesses: secured and unsecured. So what’s the difference between them?
Secured business loans require collateral from the borrower — property or equipment. Collateral is something that the lender can seize if the borrower defaults on their loan payments, so lenders are more likely to approve this type of loan since they can reclaim some of their losses if needed.
Unsecured business loans don’t require collateral, but they have higher interest rates than secured loans. Borrowers with less-than-perfect credit scores also tend to see a higher interest rate because lenders see them as more of a risk.
Suppose you are thinking of opening your franchise. In that case, it is helpful to understand the best business funding options available to help you get started and make inroads into your new competitors. These resources should be considered if cash flow is a little tighter than expected or looking for opportunities to grow.