Which Franchise Financing Option is Right for Your Small Business?

by Mary Jezioro

May 7, 2015 7:00:00 AM

franchise-financingAs a small business owner and entrepreneur, understanding the financing options that will meet to your needs is always key. You may not want to start a business from the ground up, so looking at different franchising options may work well. There are a number of franchise financing and funding options available to business owners who wish to franchise.Some of these options include:

• 401k financing (otherwise known as Rollovers for Business Start-Ups)
• SBA loans
• Unsecured loans
• Portfolio loans

Our related blog post here sheds light on the features and benefits of each of these common options for start-up funding. 

Franchise Financing: Ask the Right Questions

Understanding all costs associated with these types of franchise financing will give you a clearer picture of which one will work for you and your current situation. Doing a cost analysis will determine how much each one will cost you over time. Small business finance firm, Guidant Financial, offers more information about choosing the right financing option through cost analysis here

There are many considerations involved in each scenario like initial fees, interest, monthly payments and how much you will pay in total. Knowing the actual cost of the money you are borrowing is crucial in preparing for your franchise financing.

Asking yourself the right questions will also help. Here are a few that can have an impact on your decision:

Do I want to borrow or use my own savings?

Carefully evaluating the position of your savings account and other investments can put you ahead. It is important to determine whether or not you can withstand using the money from your savings, or whether or not it will be ideal to borrow money and keep a cushion for yourself.

What’s my priority in repaying the money?

If you don’t mind repaying money over time, then some type of loan may be an option for you. Even if you want to pay it off quickly, you may be able to build credit based on how you pay. Considering the priority of how you pay should be factored into your overall decision.

Will my personal assets be at risk?

When entering a business venture or committing yourself in investments, understanding how your personal assets may be impacted is a priority. If you do not want to have any personal liability, then certain types of financing won't be right for you. This is an important consideration in choosing your long-term financing plan. 

How fast can I pay off the debt?

Your decision on how fast you can pay off the debt weighs upon many factors. When starting a new franchise, no matter how successful overall, you may experience downtime where sales may be a little slow. Having the funds available to withstand lean times and pay off your balance each month should always be factored into your final decisions. On the other hand, you should also be aware of the terms of the loan. For example, if you are able to pre-pay or payoff the debt early, will there be penalties associated with that? 

Smart Planning Affects Long-Term Success

Investing in a franchise may be a viable business investment and choosing the right one should be a careful decision in itself. Having the right funding plan in place from the start will make a huge difference in your planning and business success for the long-term. To learn more about the franchise business model, download our free e-book below for a roadmap to franchise success. 

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Topics: Business Growth

blog author

Mary Jezioro

Mary Jezioro is the Vice President of SHIELD Security Systems. As the Marketing and Sales lead at SHIELD, she is focused on strategic planning and company growth. Mary is involved with the UB School of Management as former CELAA's Vice Chair, SCORE, WPO (Women President's Organization) and is also coached youth soccer. She and her husband, Ken, are proud parents of five children.