Funding options for a franchise purchase
- Tuesday, April 17, 2012
Purchasing a franchise is an expensive endeavor, and there are several options potential buyers can take advantage of when it comes to securing funding for a small business opportunity. However, each option comes with benefits and drawbacks, so there are several aspects to consider before requesting financing from lenders.
Some franchise owners who have a large amount of personal savings may only need a small amount to get their operations up and running. In these instances where a small loan is needed, many buyers turn to family members for funds. While this source of financing is common, it's important to treat a family loan as a business transaction and draft up a loan and repayment agreement in the same way a borrower would if they were taking out a traditional loan. Not only can this make family members feel more comfortable about the transaction, but also protect a buyer's business interests.
If buyers choose to secure a traditional loan, it's important to have all their bases covered before making the request. Banks and lenders will require buyers to develop a business plan that highlights all the management leaders, cash flows, future financial projections and product descriptions of their franchise. In addition, lenders typically pull a buyer's credit report and request tax returns going back at least three years. For this reason, buyers should make sure their credit record is clean and their business plan is solid before submitting a loan application.
Private lending is another option, and franchise buyers may not be required to prepare and sign as much documentation as they would with a traditional loan. In addition, credit requirements may not be as stringent as those needed for traditional loans. However, private loans tend to come with higher interest rates and stricter terms than traditional lending products, so buyers should ensure they have a solid back-up plan in case their franchise hits a rough financial spot.
Lastly, many franchise buyers use personal property as collateral to obtain financing. Personal assets, such as homes, vehicles, boats, RVs, investments, collectibles and heirlooms and cash accounts, are the most typical forms of collateral buyers use to obtain a loan. However, it's important that buyers develop a contingency plan for their franchise to lower the risk of losing their assets.
The Liberty Tax Service franchise opportunity is appealing to a diverse America, ranking highly for its affordability and potential. Entrepreneur magazine has ranked Liberty Tax Service on its “Franchise 500” list of best franchise opportunities since 1998. Liberty Tax Service is the only tax franchise on the Forbes magazine’s “Top 20 Franchises for the Buck (2012)." Our tax franchise is an affordable and viable business choice. Each office provides thorough, computerized tax preparation coupled with superior customer service. For the best small business opportunity in the income tax franchise industry, choose Liberty!