How to make money franchising your business
Starting a business, on the other hand, is difficult. Approximately 20% of new enterprises fail in their first year, with 50% failing by the fifth year. Franchises have a pre-made company model that has already shown to be profitable. Purchasing a franchise, on the other hand, usually necessitates a large sum of money. Continue reading to learn how to pursue those hot franchise prospects even if you don’t have any money. If you’re interested in a franchise but lack the financial resources to pursue it, you do have several possibilities.
Financing for Franchisors
If you’ve made up your decision about a certain brand, see if they provide franchise financing. Many businesses recognise that their franchisees will not bring all of the necessary funds to the table. Inquire with the band about finance alternatives for their business partners who are just getting started. To demonstrate your devotion to the enterprise, the franchisor will usually want you to make some kind of investment in the firm.
A loan from a traditional bank
Individuals who satisfy certain criteria are eligible for small business loans from banks and credit unions.
- Personal credit rating of good to exceptional
- A favourable credit usage rate (under 30 per cent)
- A long credit history with banks
Furthermore, conventional lenders prefer to lend to franchisees since they are supported by a business strategy that has worked in the past. Traditional lenders are particularly pleased to see well-known franchise brands, although lesser-known franchise businesses may not be as tempting.
Loans from the Small Business Administration (SBA)
For potential franchisees, SBA loans are also a popular alternative. The Small Business Administration (SBA) is a federal agency that provides long-term loans at competitive rates. The SBA does not provide loans; instead, it guarantees a loan made by a bank or credit union.
The SBA 7(a) loan and the SBA CDA/504 loan are the two most common forms of SBA loans. Individuals can borrow up to $5 million through the SBA 7(a) programme, with payback periods ranging from 7 to 25 years. From real estate to franchise fees, the loan may be utilised for a number of things. The interest rates on these loans will be determined by the loan amount and term.
The SBA CDA/504 loan is a team endeavour that is often split down as follows:
- The franchisee can get up to 40% of the money they require through a nonprofit Certified Development Company (CDA).
- A bank or credit union may contribute up to 50% of the total.
- The franchisee may invest as low as 10% of the total cost.
There are several restrictions on how an SBA CDA/504 loan can be used. You can’t utilise the loan to pay for franchise costs, for example. While an SBA loan is simpler to obtain than typical company loans, it is still a lengthy procedure that needs the lender to have a good credit score.
Loans against your home’s equity
You can acquire a home equity loan or a home-based line of credit if you own a home. Both of these options leverage the value of your home’s equity to authorise the loan or credit. The difference between the value of your property and the amount you owe on it is known as home equity. One disadvantage of home equity loans is that they put your house in jeopardy if you default on your loan.
Rollovers for New Businesses
Taking funds through your pension plan is frequently accompanied with a plethora of costs. You may avoid these costs and get your money in a few of weeks if you use ROBS. ROBS allows you to start your business using money from your retirement account, without the need to go to a lender.
If you don’t have the money to establish the franchise on your own, try partnering with someone who can. An investor might be a close friend, family member, or even a former coworker. If you choose this path, keep in mind that you’ll be giving up some control of the company. It’s also a good idea to draught a thorough partnership agreement that spells out everyone’s roles, rights, and profit distribution.
My name Is Dhinal Baxi and I am from Ahmedabad, Gujarat, India. I am a founder of franchise Insider. As a founder, we have served hundreds of clients. My experience from the financial sector has helped them to achieve great success in the franchise world. Franchise Insider is one of the leading franchise advisory and consulting company.