1. Money

Ease of Obtaining Franchise Financing

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Financing a franchise is typically much simpler than obtaining funding for a business starting from scratch. This can be attributed to the fact that franchises tend to have proven track records. The trademark and brand is already established; therefore a franchise business is considered a lower risk investment.

Franchise Bank Loans

Commercial banks are more likely to lean toward lending to franchises while at the same time offering lower default rates. In fact, there are numerous financial institutions that concentrate most of their loans on franchises, as the franchising industry has been growing at an average rate of 10-12 percent per year.

Also, the U.S. Small Business Administration (SBA) offers competitive loan packages with some providing longer terms. In these cases, the loans are usually made by a lending institution or private bank, with the SBA guaranteeing part of the loan.

Franchisor Assistance

If a potential franchisee has decent credit and seems to have the necessary skills to run the business, franchisors will usually assist with financing in any way that they can. Some franchisors may even pre-qualify potential franchisees in addition to helping them put together their loan application packages.

A good number of franchisors offer financial help to the franchisee either by financing all or part of the franchise themselves or by assisting them in locating another lender. Many franchises will provide lists of bank and non-bank lenders that they have good working relationships with.

Other Financing Options

Other ways to finance a franchise include limited partnerships, loans from family and friends, and second mortgages on existing properties.

Finally, whatever means a franchisee pursues in financing their franchise, it is important to remember that they will need to partake in preparing a detailed business plan in order to demonstrate to potential lenders how the business will be operated.

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