Facing and Overcoming Three Most Common Financing Fears While Opening a Franchise
Qualifying a loan for the business has inescapable challenges and fears of its own. When it comes to a tried and true business model with built-in brand recognition, it may be easier to qualify a loan for your franchise. However, qualifying a loan can have some serious challenges for unique business model especially when you’re standing out or want to expand. The present blog enlists common franchise funding fears along with the solutions.
You will not be Able to Qualify for Enough Startup Funding:
Depending upon your level of experience, the cost of opening a franchise can be between 10K $ to 3 lac $. If it’s your first time, you most prolly may have these costs on the higher end and difficult to qualify for funding.
- Asking about in-house financing:
Although it’s not the norm, franchises sometimes offer funding programs to new business owners. If it is so, you have a built-in source of funding to start off your new business. However, even if your franchise offers funding, you may still want to consider other alternatives available to you, which might come with more favorable terms or rates.
- Consider Franchise and Startup Lenders:
You should definitely look for lenders who have specialization in franchise financing since they often offer funding to get your new unit up and running. Lenders working with startups could also assist in order to get some or all of the funding you need, even if your doors haven’t been opened by you. As you’re working with an already-proven business model, you may have an easier time to get a competitive price and term than non-franchise startups. However, lenders of this sort tend to rely heavily on your personal credit and business experience which means that it may not be the best option if you’re new to the game.
- Taking out a Personal Loan:
Do you have a good credit and only need $50K or less than that? Comparing the best personal loans available to you may help you find an even more competitive price. This is because personal loans generally have lower rates than business loans. However, you need to have a steady source of income to qualify if you’re self-employed.
- ROBS (Rollover for Business Startups.)
If you’ve more than $50K in a retirement plan, you can roll over the capital to finance a new business. This is known as Rollover for Business Startups (ROBS). The process is a bit complex, so many entrepreneurs choose to hire a company to assist them set it up and maintain the new retirement account. It can set you back around $4,000 up front, but could ultimately cost less than a loan.
- You will not Get Funding for a Second Unit 2:
You will not get enough funding for you.
So, you desire to open up another franchise; perhaps it’s in your contract or maybe you just want to expand. Finding funding for your second unit can be really challenging, since lenders now have a business under the same management and model that they can investigate.
Wait until you’re ready to apply for a bank loan
Waiting can be the best thing you can do. Even if your franchise unit is doing exceptionally well during its first six months, banks will generally offer more agreeable rates and terms to businesses that have been around for at least three years. In fact, some may not work with you at all before that time.
If you have got the time, you should wait until you’re fully comfortable running your first franchise unit before you expand. When you’re all set and up, you’ll have a better chance of qualifying for lower rates and more competitive terms — and you’ll be better prepared to make your second location successful.
Save any personal funds you have for opening your second unit.
At times, waiting around isn’t an option; especially if opening a second location in the first few years is in your contract with the franchisor. In such a case, borrowing funds to open your first location and saving any personal funds you have for opening your second unit can be opted for.
Besides helping to fund your new unit, it can also make it easier for you to qualify for financing down the line. And mind you, lenders generally prefer working with business owners that have some skin in the game.
You won’t be able to get emergency financing as quickly as required:
As a franchisee, mostly you have an easier time getting a bank or Small Business Administration (SBA) loan than some other small businesses. But bank loans can take as long as two weeks to fund and sometimes longer if you’re getting money from the SBA. That will not cut it when you have an emergency expense such as broken equipment or a particularly slow season.
Get an online term loan
When you are in the need, online business lenders might be the best bet for you. Some can get you money as soon as the next business day.
But you should do your research to make sure that you’re getting a good deal. Online lenders typically charge higher rates than banks; in some cases, running anywhere from 30% to 80% APR
Go with a merchant cash advance
A merchant cash advance (MCA) can be your next best option, if your business can’t qualify for a term loan. MCA companies offer advances on your business’s future sales, which you repay with a percentage of your daily revenue along with a fixed fee. And you can mostly get funding as soon as the next business day.
You are not in the need to have credit or be in business for very long to qualify for this type of financing. However, it comes with a precipitous price. Most of the times, fees translate into APRs over 100% — sometimes even topping 300%. Save it for an absolute emergency and carefully weigh the downsides before you sign up.
Franchises certainly have a lot of pros over other types of businesses and financing is also one of the aspects wherein you get the benefit. Grab the benefit of low-cost bank and SBA loans whenever possible. But if you’re just starting out and desire to open a second location or have an emergency cost, you might need to look into some alternatives like online business loans.
For any queries, feel free to contact Franchise Insider.
Franchise Insider is one of the leading franchise consultants working across the nation providing the best franchise opportunities to prospective and potential franchisees according to their skill sets and budgets. Interested in buying a franchise? Just fill up our Perfect Franchise Match Form, free of cost.
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