Financing a franchise business is different from any other startup company. Since you are buying a license to operate under an existing brand, the cash obligations are usually a bit higher up front, but there is less uncertainty about issues like supply line costs and a ready customer base. For many investors, that leads to a perception of lower risk which is often true when one is opening a popular brand location known to an area.
1. Apply for the Right Kind of Financing
Franchise financing comes in two types. There are programs aimed at long-term loans for big costs like asset purchases during your startup phase. There are also programs aimed at short-term working capital loans and other credit products that provide similar flexible financing. You must pick a good program that offers what you need and fits the right type of financing for your needs.
A lot of new business owners get frustrated when their bank loan approvals take weeks because they try to take the loans out for immediate needs. Private lenders and alternative lending products provide useful short-term financing under those circumstances.
2. Use Franchise-Specific Programs
When browsing most kinds of small business financing, it can be hard to tell if a loan package will work for franchise businesses. Looking for franchise-specific programs can help you avoid wasted time and duplicated effort. It can also show you which of the longstanding loan programs you already know about are franchise friendly. One good example is the SBA’s 504 loan program, which has a specific whitelist of approved franchise financing brands.
3. Provide Details About Your Personal Finances When Necessary
This last tip is more of a general tip about applying for loans when you have a new business. Many programs that work with new companies or that waive traditional two-year operating history requirements do so because the application is also approved as a personal debt for the entrepreneur. A good example of this is the SBA’s 504 program when it is used by a startup.
Other programs simply require the owner’s credit to be in good standing as a stand-in for the business in a credit check. If you skip personal details because you have provided complete information about your business, it could slow down your application and force you to do parts over again. That’s never a good idea when you need funding.