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How To Look At Your Franchise Financing Options

Jun 25, 2008
So you've decided to start working for yourself; congratulations! Being self-employed can be a wonderful thing. Franchising is one of the very best ways to go into business for yourself, but you'll need financing for your new start-up. If you intend on obtaining financing for your new business venture, start looking at your franchise financing options now. It can take longer than you think to apply and wait for an approval.

Home Equity Loans: This is the least expensive and easiest commercial loan option, generally speaking. If you own your home and have some equity built up in it, you can get a home loan in around a month. A line of credit loan will allow you to draw checks upon this loan as expenses arise. Remember to include you loan payment as a business expense when doing your financial statements.

Your Retirement Account: This is a lesser known franchise financing option. Companies exist who are in the business of converting your retirement account's funds from a retirement account into a fund for your business. However, this is not the best choice for the risk averse - you are, after all using your retirement funds for this venture, so be cautious if you go this route.

SBA Loan: The Small Business Administration provides loans for start-up businesses; or rather, they give guarantees to banks for these loans. The SBA sets up the loan programs and determines who qualifies for these loans.

Keeping It In The Family: Suppose you have good credit but don't own your own home. You could (provided you can convince them) use the home of someone in your family as collateral for a SBA or other type of loan. You'll still have to qualify for the loan of course, but this can be a way of getting collateral for the loan that your business needs.

Asset-Based Lenders: Using an asset-based lender is a possibility if you'll have to buy equipment and other items for your new business. You won't be able to finance all of the costs that you'll incur with one of these loans; there is, for instance, the franchise fee to be paid - but you'll need less cash on hand at the beginning this way. You collateral for this sort of loan are your assets (equipment, etc.). Keep the interest rate in mid here; the interest rate will be higher for an asset-based loan than for a loan with collateral consisting of real estate.

Sell Stock In Your Corporation: This can take some doing, since you'll need the services of a lawyer to incorporate your new business venture, not to mention convince investors that buying into your start-up is a good idea. You'll need a business plan which can excite investors, yet doesn't sugarcoat the potential risks of the venture.

There are a lot of franchise financing options available out there; these are just a few of the most commonly used ones. It is very important to consider your financing source when deciding whether to buy a franchise or begin any sort of new business.
About the Author
Kevin Sinclair is the publisher and editor of Be Successful News , a site that provides information and articles on how to succeed in your own home or small business.
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