Franchise Ownership: Financing Options to Evaluate | Hot Dog on a Stick Franchise

Franchise Financing: 6 Options to Evaluate

  • August 15, 2016

Franchise ownership enables you to enjoy the entrepreneurial experience, but with a special edge. That’s because when opening a franchise storefront, the parent company/franchisor licenses you the ability to use an established business name, product, and brand. Franchise owners enjoy working with an established company with a proven business model.

However, the challenge of finding financing remains. Funding a franchise, like funding any business, is one of the biggest challenges new business owners face. Luckily, franchise ownership comes with some unique financing options, such as special franchisor discounts on fees and online financiers who cater specifically to franchises. There are also the traditional business financing options, including SBA-guaranteed loans. Here are some popular financing options to evaluate:

franchise ownership

Franchise Ownership Financing Options

1. Traditional Bank Loans

Banks and credit unions are the first-stop source of financing for most businesses, including franchises. Most lenders are more apt to finance franchises than other new businesses because they are an extension of an established brand. However, traditional banks often have stringent underwriting standards and lending policies that will require a thorough application process. Which might lead you to seek out online lenders.

2. Online Lending Options

Big banks prefer to fund individuals and companies that are so successful they don’t really need financing. This can be discouraging for millennials and first-time entrepreneurs who are ready to take on the work but don’t have the history to back it up. This is where online and peer-to-peer lending companies can help. The online lending space offers would-be franchise owners streamlined application processing, greater approval chances, and faster money-in-the-bank funding.

3. Asset Financing

Traditional loans and their terms are not for everyone. Asset financing is a great alternative because it enables franchise owners to free up their capital to invest in their franchise assets. This is best utilized in scenarios in which business equipment is needed but cash flow is an issue, such as when a franchise is starting up. Asset financing secures loans based on the assets you offer up. This offers owners financial security and flexibility.

4. Angel Investors

Sometimes, it is best not to go it alone. Angel investors are individual or corporate investors seeking promising entrepreneurs who have upside potential that can increase returns on their investments. Angel investors will frequently require an equity participation as part of their funding amount. While this might make the financing more expensive in the long run, it might be the most viable and attractive way to achieve immediate franchise ownership.

5. Crowdfunding

Many entrepreneurs find that the best source of funding is their social networks. Crowdfunding websites like GoFundMe can be an effective way both to spread word about an up-and-coming business and to raise seed money (potentially even to attract larger investors) to open a new franchise location.

6. Work Directly with the Franchisor

Some franchisors may offer direct financing to their franchisees or offer connections to preferred financing partners. A great franchisor will work with you to establish your franchise location, necessary supply lines, and equipment to start your business. Financing from your franchisor may take a variety of forms, including loans that are based on simple interest, no principal, and/or a potential balloon payment due 5 or 10 years down the line once your franchise is established.

Are you interested in franchise ownership? Becoming the owner of your own business is more accessible than you might think. Contact us today to learn more about how you can open your own franchise location and how to get the franchising funding you need to get started.