Monetary Aspects of Franchising

You have arrived at this page because you have considered a franchise for your business opportunity. You have decided that it might be a viable option over starting your own company. However, you still have questions, especially about how to finance a franchise and whether it is actually easier. We will examine all of this and much more in this section.

Starting any new business is going to be costly. If you need help from a bank or other lender it can be hard. They will want to see a business plan, research, credit history, and financial projections. For a business without a history there is a higher risk, in the eyes of the bank. A franchise can be a lower risk, but not always. There are some things you can do to make getting a business loan easier, such as have a down payment or collateral.

Franchises have the financial history to support the business plan. There is solid proof that the company does work, which the bank likes to see. You still have to come up with market research, financial projections, and supporting evidence. Is the area really able to support a franchise? Is there a customer base in your area? Can you find an affordable place to house the franchise? These questions will help in your research to determine if the franchise would work.

Now for the catch- just because you have a proven business plan does not mean you can create the same success. Sometimes a franchise fails because of the owner trying to run it, make changes, or they just don’t work hard enough. The banks and lenders understand this, thus they are still wary of a franchise. They will examine the supporting evidence you have to see where the risk lies. If it is too much they will decline the loan.

There is one other small problem with a franchise and getting financing. Banks will provide at most 70 percent of the financing needed. You would have to come up with at least 30 percent, sometimes more. If you do not have financing in your account it won’t be possible to own a franchise. It’s best to have at least 50 percent of the franchise costs in your bank. If you can save up 100 percent of the funds you could ask the bank to give you a loan. This way you will have savings to help you through the first few years, lowering the risk to you and the bank.