Owning a franchise comes with challenges, and there is one you will need to figure out before putting pen to paper. How you’ll afford your franchise is something you need to take into consideration when choosing the franchise you want to own. Obtaining financing help is common in franchising.
This blog will discuss the common financing options available to franchise owners: SBA loans, franchisor financing and bank loans.
SBA Loans
Small Business Administration (SBA) loans are one of the most popular forms of financing for franchisees. To provide these loans to franchisees, the SBA works with different lenders to fund the loans.
You will need a detailed business plan and to have your credit history assessed before obtaining one of these loans. Part of what makes these loans so popular is that the SBA guarantees a portion of the loan, which means that lenders are taking fewer risks and are more willing to offer loans of varying amounts with longer repayment times and lower interest rates.
SBA 7(A) is the most popular type of loan and allows you to take up to $5 million. The CDC/504 loan allows up to $5.5 million dollars and is often used for equipment and real estate. The smallest loan is the SBA Microloan, which allows borrowers to take up to $50,000.
Franchisor Financing
Another form of financial assistance is financing through your franchisor. This can come in the form of help with the franchise fee or help with purchasing any of the necessities needed to operate your franchise.
It is important to know that each franchisor will have individualized financing terms. This includes the amount offered and repayment times. The success of your franchise is important to your franchisor, so they will be more than happy to help you with getting started!
Bank Loans
One of the most common types of loan is a bank loan. These loans are given to small business owners to help them fund their goals. Similar to other types of loans, to secure a bank loan you will need a detailed business plan and to have your credit history assessed.
When taking a loan from a bank, remember that each bank offers its own repayment terms and interest rates.
If you are ready to start your career as a franchisee, get in touch today to get started with a free consultation.