The up-front costs to open a franchised business can be as little as $20,000 and as much as many millions of dollars. For many franchisees, this means finding a way to finance their investment. Many financing options exist and prospective franchisees should consult with financial and legal advisors before signing any agreements. Some examples of financing options include:
Bank loans
Traditional bank loans are a common source of franchise financing. Franchisees will need to demonstrate a solid business plan, a good credit history and sufficient collateral.
SBA loans
The Small Business Administration (SBA) in the United States offers guaranteed loans that can be used for franchise financing. To qualify for most of these, the borrower must have a strong financial and business history.
Franchisor financing
Some franchisors offer financing options to help franchisees start their franchised business. Franchisors may provide loans, payment plans, or other financial assistance.
Other loans or lines of credit
Other loans or lines of credit, like mortgages and home equity lines of credit, are riskier financing options.
As always, borrowers and new business owners should seek legal and accounting advice before committing to anything.