How to Finance Your Franchise

Opening a franchise location can be an exciting opportunity for business owners. Of course, going from planning to opening day requires a lot of capital, so you’re probably going to need to apply for financing. What kind of franchise financing is right for your business, and where can you find it?

What Expenses Are Involved in Opening a Franchise?

The amount of money you need to start a franchise location depends on the type of business you choose. Some franchises have minimum liquid capital requirements and net worth requirements for interested parties. Here are a few important expenses you should prepare for:

  • Initial franchise fee
  • Real estate costs
  • Equipment
  • Products/inventory
  • Working capital

You also need to calculate other costs involved in running the business, including payroll, marketing, rent and other bills. While your sales should pay for some of these costs, it can take several months to generate solid revenue as you build your local client base. The purpose of franchise financing is to help you get the money you need for all of these needs, including equipment, furniture, raw materials, computer systems and other essentials.

What Are Some Franchise Financing Options?

There are many ways to cover the costs associated with running a new business. You may be able to use a combination of different sources of capital. Here are a few options:

  • SBA financing: If your favorite franchise is on the Small Business Administration’s Franchise Directory, you may be able to qualify for SBA financing. SBA loans are a great choice because they offer long repayment terms and low interest rates.
  • Conventional franchise loans: Experienced franchise lenders may offer a flexible term loan that covers all of the expenses required for opening. To qualify, make sure you have excellent credit and that your finances are in order.
  • Private loans: Another option is to invite friends and family members to support your new business idea. They may provide interest-free loans that help you with the initial franchise fee or other expenses.

There are options for working capital and starting costs. You can finance new building construction, remodeling, equipment purchases, opening expenses and other needs.

Where Can You Apply for Financing?

It’s usually a good idea to start with the franchisor first. Many franchises offer financing for at least the initial fee. You may be able to secure financing that allows you to defer interest payments until after the first six or 12 months of business. That way you can get a strong start before worrying about loan payments. For other franchises, it may be a good idea to approach a lender with experience in franchise financing.