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How To Finance Your Franchise Purchase

Franchise image of Starbucks
Photo by Engin Akyurt on Pexels.com

Establishing this type of business allows you the ability to work for yourself while having access to resources and know-how. Requires large sum of money though. Must make initial payments to the franchiser, budget for royalty fees and arrange to have adequate financial stability to care for capital requirements. However you must do your preparation homework:

Keep Ready

  • Business plan – good idea to get professional help with this document. Any lender that you approach would like to get a very good idea about how you plan to use the money you borrow and the revenue streams that you will generate to pay it back. You should describe the product or service that you plan to sell and your target market. 
  • Credit score – a high credit score will definitely help. 
  • Proof of equity – no lender will extend 100% of the finance that you need.

Source of Finance

  • Banks and credit unions – traditional sources like a bank or a credit unions are usually the most economical option. While your proposal may take time to process, you can be sure the rate of interest on your loan will be the lowest when compared to other sources.
  • SBA loans – If bank you have applied to hesitates in extending finance, a Small Business Administration (SBA) loan may be a good alternative. The SBA is a government institution that does not make loans itself but does guarantee those made by other lenders.
  • Franchiser – can be the most convenient option. Meet the franchiser’s eligibility criteria and you have a good chance of getting funds from their finance arm.

Other Sources

Many franchisees approach friends and family for the money that they require for starting operations. If you have a sizeable amount in your 401 (k) or IRA account, you can consider accessing these amounts subject to the restrictions that government rules impose.

Before borrowing to start franchise operations, remember that there is a business risk involved. According to a Service Employees International Union report, 17% of franchise loans made through the SBA from 1991 to 2010 ended in failure.Small Business

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Published by Sarah

Hello! I'm a self-employed entrepreneur. I enjoy affiliate marketing and photography in my spare time. I am currently in college for communications in social media and working towards my undergraduate degree in graphic design.

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