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Everything You Need to Know About Financing Your Franchise

Loan Maze

Once you’ve decided on the franchise of your dreams, the next step is to determine how you’ll pay for the investment. There are many considerations you must take when it comes to financing your franchise.

How Much Money Will You Need?

Before you can decide on how you’ll finance your franchise, you must understand how much money you will need.

Most franchises will offer financing opportunities, but that doesn’t mean they won’t expect an upfront investment. This is called the “minimum cash required.” It’s an investment that changes dramatically depending on the industry and specific franchise you want to start.

Most of the minimum costs to start a franchise hover between $25,000 and $100,000 of upfront capital. Still, in some cases, you could pay as little as $10,000 or as much as $300,000 to start your franchise. It truly depends on the franchise you choose.

Most franchisors will also recommend having a minimum amount of cash on hand for supplies, marketing costs, royalty fees and administrative costs. For example, if you’re starting a franchise in the childhood education industry, you will need school and classroom supplies, as well as money for advertising and hiring teachers to help. Keep this in mind when you plan the financing for your franchise.

You’re Going to Need to Come In With Capital

If you’re like most franchisees, you’ll use personal savings to pay for the upfront opportunity cost (the minimum cash required by the franchise). Because of this, convincing your family to buy a franchise isn’t always easy. By focusing on the benefits, such as having a proven model to get your new business off the ground quickly, can help persuade them that financing your franchise is a smart investment.

Putting Together Your Business Plan

Once you’ve figured out how much money you’ll need and decided on how much you’re willing to spend from your personal savings, the next step is to finance the rest of your franchise costs. To do this, you’ll need a business plan.

In your business plan, it’s important to include as many details as possible, such as:

  • Sales projections;

  • Cost analyses;

  • Marketing details;

  • Working capital;

  • Payroll expenses.

The more information you can include, the more likely you are to have your financing approved.

Franchises Offer Financing Options

Most franchisees will look to the franchise itself for financing first. There are a variety of ways these loans are structured. Some are straightforward with interest only and no principal. Others offer the first few years free of financing fees.

You might also be able to finance equipment through your franchisor.

Talk to the franchise to learn your options. You might be better off going entirely through them instead of heading to the bank to try to get a small business loan.

Small Business Loans Are Available

If you do need more financing, or feel there are better financing options available through a bank, you might consider a small business loan. In recent years, these have been difficult to get. But as the economy improves, so do franchisees chances of getting a loan. Having a strong business plan in place will increase your chances of approval.

How Will You Finance Your Franchise?

With so many variables to consider, there is no one way to finance a franchise. Take each of these factors into account as you decide on the best option for you and your family.

Susan Payton is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.

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