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Franchise News


December 1, 2011

How to finance a franchise acquisition


Although you will be starting your own business from scratch, risks are lower and the chances of success are increase significantly by acquiring a recognized franchise with planning and tested know-how


Although you will be starting your own business from scratch, risks are lower and the chances of success are increase significantly by acquiring a recognized franchise with planning and tested know-how; all you have to have in mind is that you have to choose an industry or brand you know so you can develop your business more easily, either because you know the activity, by personal skills and background, or by the strength and success of the brand of choice. Key elements for making a decision

Once you've taken all the steps to get detailed inquiries about all the obligations and benefits of a particular brand, pay special attention to funding, if you don’t have the capital, which is the case for most people.

There are all sorts of financing options for the different franchises on the market, as well as special possible resources:
  • Financing from the franchisor. Some franchisors can offer financing for down payments, or set incrementing payments to facilitate the business start, when more investment is needed with a good degree of liquidity. These conditions are not easy to find, especially if you do not have a strong financial backing.
  • Advice and support to get third party financing. There are franchises that have strong relationships with lenders, from which they have received funding for other prospects. The advantage is that the entity knows the business plan and has been able to assess performance over time. This means that you don’t depend on a business background study, but simply on the repayment capacity and guarantees as a future franchisee. This helps to shorten the procedures and costs for the entity.
  • Special loans. There are loans backed by the Federal Agency for the Development of the Small Business Administration (SBA). There is some variety in terms and amounts, but basically it is the same as with a lender, once the business plan and the investment project are adequately evaluated, it determines the personal circumstances of the borrower (future franchisee) and whether the loan is granted or not, despite his/her good merits (performance of the franchise). This being the case, the lender takes the business plan to the SBA, and all the data for the required consideration by the Federal Agency, requesting a backup to approve the loan. The SBA usually gives its approval, guaranteeing up to 80% of the loan requested. There are different amounts and percentages, but the idea in this article is to mention the existence of this funding opportunity, and that it has been granted by the thousands in recent years. You can check the SBA's programs available, by visiting www.sba.gov, or www.negocios.gov. You can also call toll-free to 1-800-827-5722.
  • Direct credit to the franchisee. There are companies, as well as individuals with a good capital and financial capacity with strong banking relationships, which with the accepted guarantees by the lender, get the resources needed to meet new investment projects. This can be seen more among those who acquire Master Franchises, whether for a country or region.
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Category: General


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