Financing a franchise

One of the toughest aspects of forming a franchise relationship is probably arranging the finance for the enterprise. There is a lot of responsibility involved in arranging the financing and a detailed business plan and research is an essential part.

As it can take a substantial amount of money to purchase a franchise, a franchisee should ensure that there is sufficient cash to undertake such an enterprise. Although a full cash payment is fairly rare these days, it is necessary for a franchisee to possess at least 25 – 30% of the total cost involved to be considered eligible for a loan. A franchisee should have a decent credit standing and history to facilitate the loan process and should also possess relevant collateral towards covering the loan amount. It is also better if the franchisee has an already established reputation as a sound entity in the market.

A franchisee should consider several options for raising the money required for an enterprise. Apart from approaching a bank for arranging the necessary funds, a franchisee can also consider borrowing from friends and family; apply for mortgages against existing property, use their savings or even approach the franchisor for financing options if they offer that option.

There should be a serious evaluation of the financing options available and a franchisee will be better off by consistently seeking professional advice towards selecting a viable financial option. Constant communication with the financial institution and the franchisor will go a long way towards ensuring that all parties are on the same page and the most appropriate and affordable financial option is chosen.