Franchise Financing: 7 Options, and How to Determine Your Eligibility
When it comes to owning a franchise, there are different financing options available. Learn all about franchise funding and find out if you qualify.
Can I Afford to Own a Franchise?
Buying a franchise is a significant investment, but potential franchisees who may lack personal capital should not feel discouraged to achieve their dreams. Fortunately, there are many options for financing a franchise, but determining your eligibility can be a bit more complicated.
The cost of owning a franchise can vary widely depending on the industry, the size of the franchise, and the location. Generally, you should expect to invest anywhere from tens of thousands to millions of dollars to start your own franchise. To determine whether you can afford to own a franchise, you need to take a hard look at your personal finances and assess your ability to handle the investment.
One way to determine if you can afford to own a franchise is to calculate your net worth. This includes adding up all of your assets (such as cash, investments, and property) and subtracting your liabilities (such as debts and loans). Your net worth is an important factor that franchisors will consider when evaluating your eligibility to purchase a franchise.
What Qualifications Do Franchisors Look For?
Franchisors are looking for investors who have a strong financial background and can demonstrate a commitment to the franchise. To determine your eligibility to purchase a franchise, franchisors will typically ask for your personal financial statements, tax returns, and credit reports. They will also evaluate your business plan and financial projections to ensure that you have a realistic plan for success.
What Is Franchise Financing?
Franchise financing is how franchisees pay for franchise fees and other business startup expenses. When investors can't cover the full startup amount on their own, they must utilize a combination of methods to pay all costs. Still, most traditional lenders generally require some personal funds upfront, including around 10%-30% of the total investment in cash.
To qualify for financing, prospective franchisees must generally possess a positive net worth, or at least more assets than debts, a standing that franchisors will look into at the outset. Franchisors may also require a minimum amount of liquid assets to cover startup costs, operating expenses, and other financial obligations as the business gets off the ground.
Remember that the most important investment you make as a new franchisee is your time and dedication, so there are many options and creative solutions to assist with the financial component to help you get your business up and running.
- Franchisor financing. Some franchisors offer partial financing directly through the parent company, but more commonly, they partner with third-party preferred lenders who are familiar with the brand and willing to administer loans to qualified candidates.
- Personal assets. Savings accounts, severance packages from previous employers, and home equity and retirement savings plans are sometimes used to help finance the purchase of a franchise. Leveraging these assets, however, can jeopardize financial security if you find yourself over-extended in the future.
- Rollovers as Business Startups (ROBS). ROBS are a method of withdrawing money from a 401(k) or other retirement savings accounts to fund a new business without incurring penalties. Although completely legal, this approach may attract closer scrutinization from the IRS, so you must be sure that everything is done to the letter of the law.
- Commercial bank loans. Prospective franchisees can apply for a commercial business loan with the bank of their choice. Bear in mind that approval typically depends on a good credit rating and detailed business plan in order to even qualify. Some of these loans also require an upfront deposit and come with varying interest rates and installment terms for repayment.
- Small Business Association (SBA) loans. SBA loans are similar to bank loans except the SBA guarantees a portion of the loan amount, making them more attractive to lenders. SBA loans can also be easier for small businesses to get and often have better rates and terms than loans from a bank. Many reputable franchises are approved by the SBA and included in their official Franchise Directory, including PremierGarage.
- Alternative lenders. These may be an option if you are unable to secure a commercial or SBA loan. While the approval process is faster and less stringent than that of traditional lenders, the interest rates will likely be higher and the repayment periods shorter.
- Friends, family, & crowdfunding. For those who lack capital or have less than stellar credit, borrowing from friends and family may be an option. Just be mindful of personal and professional boundaries; it is advised to set clear terms and contracts that are fair to both parties. With crowdfunding, investors will expect to receive early access to products and services, shares in the company, and other perks in exchange for their investment.
A Premier Option
PremierGarage offers a low-cost franchise opportunity to a broad range of potential franchisees. Qualified candidates may receive up to $44,000 of in-house financing and sliding-scale royalty fees to make an already affordable investment even more so.
Home Franchise Concepts, PremierGarage’s parent company, is a leading name in the home improvement and services industry. As the nation’s preeminent name in garage flooring and storage solutions, PremierGarage works with franchisees from all backgrounds to make their entrepreneurial dreams a reality. The support doesn’t stop after you’ve signed on the dotted line, either. PremierGarage provides comprehensive training with the backing of a team of industry experts, marketing and sales support, and a scalable, low-inventory business model that covers over 100,000 homeowner territories.
To learn more about how you can own your own PremierGarage franchise, contact us today.