How to obtain loan to start a franchise?
Franchise is unique in the sense that most of the hard work that goes into starting a business from scratch has been done for you, by the franchisor. The only unanswered question left for some new franchisees is - how to obtain a loan to start a franchise? This is the biggest challenge for entrepreneurs who want to start a franchise, is getting the money to fund the startup costs of owning a franchise. However, the risk involved with franchises is lower than obtaining a loan for a new business, thus making it easier to obtain a loan, but finding financing for your project can still be a concern.
Before we get into the details about how to obtain a loan to start a franchise, let’s take a look at the two categories a franchise can fall into:
- Product/Trade Name: Product/trade name franchising is when the franchisor sells the name and other trademarks.
- Business Format: Business format franchising is when the franchisor sells the name and trademarks as well as provides business help such as selection of business location, job training, supply products, marketing and promoting, and in some cases assist in obtaining funding for the franchise.
It really doesn’t matter which one you choose, you can still qualify for a franchise business loan from a commercial lending institution. In general, banks are interested in your personal assets and your business plan to determine if you will be a high risk borrower and to see the amount of risk they will be taking in lending you money.
Obtaining A Loan To Start A Franchise
Banks And SBA Guaranty Franchise Loans: Most entrepreneurs look at banks as the first place to begin their search for a loan to start a franchise. However, banks that cannot make a franchise business loan due to the high risks involved will obtain security of a Small Business Administration (SBA) guaranty, which assists franchises by guarantying a large percentage of the loan. However, in order to obtain the loan, the SBA takes into account a number of factors including your business experience, your personal finances, and your character before making a decision whether or not to grant your loan guaranty for your franchise business.
Franchisors Can Also Help With Funding Information For Your Franchise
Another place you can look to for information about how to obtain a loan to start a franchise is to talk to your franchisor. The franchisor should have some information about obtaining financing for your franchise; some may even have programs already set up to help with funding for their new franchisees.
Once you have found the franchise that is the perfect fit for you, obtain all the necessary information from the franchisor and start looking into all your financing options. And don’t forget your family and friends; they can also help to finance your franchise.
