New franchisees can get an edge on the start-up process by creating detailed financing plans. Preparation allows franchisees to borrow sufficient funds while leaving enough capital to deal with emergencies and plan for future expansions. Planning is difficult when it comes to know-how and resources, so potential franchise owners can cover their bases by researching the process of financing a new location ahead of time.
Assess your assets
The minimum investment necessary to buy a franchise varies from business to business. Large franchises like Panera Bread require investors to bankroll the costs of investing in several stores, and total initial costs can climb into the millions of dollars. Alternatively, smaller kiosk-based franchises like Doc Popcorn provide easier entry opportunities by only requiring investments in the $20,000 range. These mobile business models are quickly gaining popularity with corporate partners, says Foodservice Equipment and Supplies Magazine. Franchisees can get a feel for their investment options by tallying their network and credit ratings. This data provides an idea of what kind of investments are possible prior to visiting with a lender.
Meet with franchisors
Franchisors are a likely source for financing, and some companies are willing to front up to 50 percent of the investment. Additionally, franchisees should be in regular communication with the franchisor when reading through the Franchise Disclosure Document, says the U.S. Small Business Administration. Many loans made by franchisors are structured so that the franchisee is allowed several years to generate revenue and make headway on their debt. Going through a franchisor for financing can also simplify the process of leasing equipment necessary to run the business. Franchisees can also build trust with their franchisors by looking for additional ways of working with the franchisor, including the franchising process.
Bank on lenders
Franchisors often require potential franchisees to seek additional funding through a bank. In these cases, franchisees' business and credit histories will determine their ability to take out the loans that they need to start new businesses. A good credit history will also determine the interest rate that a franchisee will have to pay on his or her loan. Those with a positive history will have greater flexibility to borrow additional funds and pay back their debts on their own schedules. Borrowers also have the option of seeking out small business loans through the Small Business Administration. SBA loans are guaranteed by the government, and federal backing on these loans helps to limit the risk incurred by the investment.