Weighing outside-of-the-box financing options
- Thursday, July 14, 2011
While the current financing climate may be less than ideal for those seeking capital and loans for their businesses, including businesspeople investing in franchise opportunities, driven individuals still have options for funding their expansion plans.
Recently, the International Franchise Association released statistics on the availability of credit to franchisees, and the results were less than optimistic. The research found that 39 percent of franchisors report more than half of their franchisees and prospective unit holders have been unable to access the funding they need.
Furthermore, 60 percent of franchisors reported they haven't seen improvement in financing in the past few months, with 46 percent claiming tightened credit conditions have had a significant impact on their systems' ability to expand.
Despite the study's less than positive findings, franchising is still one of the most profitable and reliable business opportunities open to entrepreneurs today. As such, there are a number of options for those business-minded individuals looking to open a unit or expand their operations.
One of the biggest new franchising trends is a low-cost system, which allows new franchisees to pay as little as $8,000 - rather than a pricetag such as $80,000 - to open a franchise opportunity. Accordingly, lower franchise costs mean unit owners can take advantage of smaller loans, such as those in the growing micro-financing market.
Micro-financing was pioneered by Nobel Laureate Muhammad Yunu, founder of Grameen Bank, to help individuals in developing nations, specifically women, launch entrepreneurial ventures. Transplanted to the U.S., it helps entrepreneurs by doling out loans in the hundred and thousand dollar range. These loans can not only help cover the initial investment costs, but also equipment and marketing needs.
Another venue franchisees can turn to is their family and friends. While these individuals should have a vested interest in a franchisee's success and may provide more flexible lending terms than a traditional financial institution, mixing family, friendship and business can strain existing relationships, especially if a franchisee faces rough times or ends up failing.
Most likely, franchisees will need to mix traditional and alternative lending to meet all of their financing needs - at least until the economy begins to see a more substantial recovery.
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