5 Ways To Become Prepared for Franchise Financing

Starting a business using a franchise is an excellent way to hit the ground running when it comes to profits. Franchises typically have a great reputation, professional equipment, and training that saves you time for getting started. Of course, investing in a franchise you love requires working capital. Franchise financing can help you meet these requirements. What should you do to prepare?

1. Start Saving Money ASAP

You shouldn’t wait until actually opening a franchise to have a savings account. Set aside money each month in savings to help finance part of the franchise fees or other preliminary requirements. Having a good savings account can help you qualify for franchise financing.

2. Keep Your Credit Clean

Good credit is a lifesaver when it comes to getting approved for franchise financing and future business loans. This means paying off all credit card purchases promptly. In the case of a small business or sole proprietorship, you’ll want to have excellent personal and business credit. Once you start with the franchise application process, avoid taking out any unrelated loans if at all possible.

3. Request Information From the Franchisor

Part of the franchise investigation process should include the topic of financing. Some franchisors provide financing for all or part of franchise opening costs, and others work with recommended third-party lenders that can expedite the approval process. Of course, you’re never forced to work with these lenders, so it’s a good idea to investigate other financing options with trustworthy institutions as well. If you qualify for SBA financing, it can save you lots of money in fees.

4. Understand What the Loan Entails

There are many different types of financing available for franchise costs; the right fit depends on how much capital you need for starting your business and how much you can afford to pay in financing fees. Investment companies or angel investors may offer to provide a large portion of the capital required with a catch: Investors generally obtain a sizable stake in your company. This means they may have a say for day-to-day decisions. If that makes you uncomfortable, traditional bank loans are likely a better option.

5. Calculate All Costs Needed for Business Operation

When deciding how much franchise financing is required for success, don’t forget to look beyond the initial investment. In addition to the franchise fees, real estate costs and royalties, you may have to calculate things such as payroll, inventory purchases, and taxes. Play it safe by having extra capital on hand for emergencies during the first three-to-six months of operation.

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