How Should You Finance A Franchise?
Getting in on a powerful franchise can be a great business decision; so much marketing, research, and development is already done for you. The price of entry, however, can be steep, so it’s important to find the best way to finance a franchise for you. Let’s take a look at some of the most common options so you can decide which one’s the optimal choice in your situation.
Using Money From Your Savings or Retirement Accounts
This method of financing your franchise, if you can afford it, leaves you most in control of your franchise and eliminates pesky interest rates. No frustrating negotiations, no need for risky collateral, just hard cash. This method, however, is advisable mostly for those with significant savings who are in a position where purchasing a franchise with cash would not endanger their ability to retire or have a financial safety cushion.
Small Business Administration Loans
Many people may find that borrowing money is the best way forward when financing a franchise. Getting a small business loan is an excellent option for such people. These loans let you use capital that’s not considered part of your yearly salary and have per-employee limits that act as a effective capital limit. Unlike traditional bank loans, which are often capped at 12% of your annual income, small business loans tend to have lower interest rates and therefore can be much more affordable than they used to be. Getting a loan lets you put less of your own money or savings on the line, but interest means you may be keeping less of your profits from the franchise.
Getting a Loan With the Franchisor
Many franchises will offer their own loans and financing to potential franchise owners. Depending on what company you are planning to start a franchise with, this may be the perfect choice for you as franchisors of course very much want to see their franchisees succeed. In order to determine if this is the best route in your situation, make sure to look closely at every other option to make sure that you are indeed getting the most favorable loan possible.
Borrowing From Family or Friends
This last option could be considered by those who have well-off connections or a large circle. This method helps get around some of the more annoying parts of getting a loan, but introduces its own quirks and dangers. You should only consider this option if you are certain that your relationships would not be endangered by mixing business with them.
