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Funding A Franchise Business Purchase

May 6, 2008
After examining all your business options you have finally decided to buy a franchise. How are you going to raise money to secure your territory? There are various ways to raise finance to buy into your new opportunity.

Most banks and lending institutions require you to have a decent credit record and a percentage of the buying price in cash. However, if you have security in the form of shares, property or such like then some banks will be willing and able to fund a hundred percent of the purchase price.

The advantage of using your property as security is that it is possible to get a loan over a much longer term thereby reducing your monthly repayments. Be careful with this approach though, because if the business fails then your property is at risk.

If you have a poor credit history or are unable to provide security then it is still possible to raise funds if you can persuade a wealthy individual to be your guarantor. In the event of you not being able to repay the loan the guarantor will be required to make up any shortfall.

A good idea is to approach lenders that have special units set up especially to deal with franchise purchases. They can usually offer longer repayment terms and more favourable interest rates to people that fulfill their lending criteria.

Banks do not just look at how much money you are willing to commit and how much security you have to offer. They are also interested in the type of person you are and how committed you are likely to be in the business once they have given you their money.

If they believe that you have the ability to run a business, look presentable and you have taken the time to create a decent business plan; this will help you to secure the most favourable loan from the right lender. Lenders are more interested in your ability to to repay the loan than how much potential there is in your business idea.

It is good idea to take out insurance to help you meet the repayments if you fall ill or have an accident of some sorts. However, this is where most lenders make their best markup and it is not necessary to take out an insurance policy from your lender. It is far better to shop around as a number of companies specialize in this field alone and could save you thousands over the term of your loan.

Even if you have taken out insurance from your lender you will still have time to shop around as with most forms of insurance you still have a short cooling off period.

With the credit crunch it is now harder than ever to get a low interest rate loan but with a well prepared business plan and some cash or security, it is still possible to get the right funding solution that is ideal for your requirements. Speak to various lenders to find the best loan with the most favourable terms.
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