Franchise businesses provide a great investment opportunity for entrepreneurs. Since they are complete operations in and of themselves, they come with training in processes and management procedures that have already been tried and proven. They also come with support for marketing and a built-in audience. Of course, there are trade-offs. Buying into a franchise requires a large cash investment up front, as well as working capital for the facilities, labor, supply purchases, and more. Franchise financing must be an important part of any plan to invest in businesses in this model for most investors to be successful.
When looking for financing for franchise companies, it can be difficult to know your options. Traditional business loans are not always available, because they often require companies to have established operating histories. It might be possible to use the Small Business Administration to finance equipment and facilities purchases on their own, but that still leaves investors with an obligation to cover up-front labor costs, supplies, and the license fee itself.
Credit lines might also be helpful with some of these items. While their interest rates are a little higher than traditional business loans most of the time, they can give you working capital when you need franchise financing. They aren’t tied to a particular purpose like equipment loans, and they can be reused when they are paid off, so you don’t have to reapply every time you need working capital. You might not be able to get enough from credit lines alone to make up the cash gap between your starting costs and your investment, though.
Luckily, there are programs designed just for franchise operators. These specialized loans often hinge on the company’s whole range of assets, including the finance license. They tend to be long-term like traditional business loans, and they also enjoy interest rates that are competitive with secured loans, so they tend to be less expensive to use than credit lines would be.
Franchise financing can take a variety of forms, but the most useful to new owners will be the simplest and most accessible. If it’s possible, always look for a program that provides you with working capital you can use to any purpose as you fund your operation. That way, you can enjoy a consolidated loan overhead that’s easy to pay. And if you’re not sure, book an appointment with a SilverLink Funding Business Finance Manager, who can teach you about specific terms for your business. It’s a lot cheaper month to month if you’re financing your startup on a 25 year loan than a 10 year one, and you can always pay it off early if your operation takes off.