As with any new business, your franchise will require a financing plan. Fortunately, franchise financing has gotten much easier in recent years. You have funding options available that can allow you to have your franchising finances together in a matter of days. Here are some of the best options for how to fund your new franchise.
What to know about small business lending
When you first start investigating sources of finance, you are likely to begin with traditional franchise loans. Franchise loans are similar to many other small business loans and can be used for working capital, to pay franchise fees, or to purchase equipment. But as far as lenders are concerned, your franchise is much like any other small business entity, and that means it can be difficult to obtain business financing. Your personal finances and credit score will likely be taken into account when determining whether you are eligible for financing.
If you don’t think traditional business lending will work for you and you need other financing options, you’re in luck. Multiple alternative sources of business finance are available.
Alternative franchise funding
Some franchisees may be worried about a lack of personal assets or poor credit history affecting their ability to obtain franchise funding. If that’s the case for you, then you may want to consider an online funding platform, like Kabbage or OnDeck. There’s no reason that your lack of credit history should hinder you from starting your own business.
The upside to an alternative business lending platform is that they look at real-time data regarding your business rather than relying heavily on credit scores. And you will receive a decision on your loan much faster than with traditional lenders. Another benefit is that once you are approved for an amount, you can take only what you need, which helps you to avoid overspending and accumulating excessive debt.
On the downside, Kabbage requires you to have been in business for a year and bring in at least $50,000 in revenue in order to obtain Kabbage funding. Similarly, OnDeck requires you to have been in business for a year, and they additionally require that you bring in $100,000 in yearly revenue. That means you may have to look into other sources of financing to get through the first year.
Many first-time business owners look to friends and family for personal loans, and this is a completely acceptable way to get started in the beginning. However, you do have another option available that provides you immediate franchise financing and makes it easier to obtain funding from friends, family, and others—crowdfunding.
The best crowdfunding sites
For first-time business owners, finding ways to finance your new business can be even more of a headache. You need money to get started, but no lenders will provide financing options until you’ve proven that your business can stay afloat. Sometimes, you just have to take things into your own hands to make your dreams come true, and crowdfunding platforms make it easier for you to reach out for financing help without the obligation of paying back debts.
Your best bet with crowdfunding is to choose only one site and stick with it. Many crowdfunding platforms require you to meet your goal in order to receive any funding at all, so you don’t want to spread yourself thin amongst different platforms. But how do you know which crowdfunding site to use?
Kickstarter and Indiegogo are among the crowdfunding platforms that have been around the longest, and they can expose your request for franchise financing to a wide audience. You don’t have to feel guilty about asking people for money. The concept behind crowdfunding is that rather than paying back interest on a loan, you provide something of value to your supporters. That can be discounts or free services at your franchise, merchandise with the franchise logo, or other rewards for their assistance in starting your business.
With each platform, you determine how much funding you need and set a goal. Once your goal is reached, you receive the funding. The platform will then take a percentage fee to cover their costs, but this is significantly lower than the fees and interest on traditional franchise loans or online lending platforms.
When comparing the best crowdfunding sites, keep in mind that Kickstarter has stricter rules regarding who can use their site. Indiegogo, on the other hand, is open to a wider variety of entrepreneurial endeavors.
In order to start and grow your franchise business, you will likely need to employ more than one of these methods of financing. We suggest starting out with crowdfunding, and don’t forget to let your friends and family know that you’re looking for sources of business finance! Once your franchise is on its feet, you can graduate to a more sophisticated lending plan knowing that your franchise is on its way to financial security.