Once the decision to invest in a franchise is taken, unless the entrepreneur has access to his own funds, the options to find capital to fund his venture is one of the key areas that will decide on the success of his franchise.
Financing a franchise will have to be decided even before the entrepreneur will open his doors for business.
As franchising is a highly individual business, most entrepreneurs’ look to raise capital by refinancing their homes or taking a home-equity loan. It is hardest to get start-up financing or raise a sub-$100,000 loan, as banks do not have much of a profit margin. Usually a personal net worth has to be larger than the loan required, which makes it somewhat difficult.
For financing your franchise in the USA, qualified entrepreneurs can borrow up to $2 million in seed capital through a loan guaranteed by the U.S. Small Business Administration (SBA). While the SBA does not make loans, it only guarantees 85% of a business loan once the documentation is complete.
It’s best for the yet- to- become franchisee to look at a franchisor that has strong banking relationship with a lending institution. As the success of funding a single franchisee often rubs off on the ones that follow.
Banks or lending institutions look at a strong credit history, which reflects the record of the entrepreneur in borrowing capital and paying back the installments on time.
While loans available for financing your franchise is available, it needs to be supported by a good credit history and some portion of the start-up capital put in by the prospective franchisee.
