Once you have made the decision to purchase a franchise, you need to obtain funding. Determining if you can find the necessary investment capital may affect your decision to start a franchise. This is an important part of your business plan, and it can be a much harder goal to achieve than you may realize.
In fact, many people give up their dream of purchasing a franchise because they are unable to find the money required to do so. Fortunately, there are many available funding options if you just know where to look. I'm going to discuss some potential funding sources so you can purchase a successful franchise of your own.
Obtain a Special Franchise Loan
Depending on the country in which you live, you may be able to obtain a
special franchise loan to start a franchise. For example, the
Many British banks also operate a franchise unit that is specifically designed to provide financing to franchisees. Banks such as NatWest and Ulster Bank provide funding to many franchisers and franchisees. This can simplify the process of obtaining funding, since specific lending criteria have already been established. You may qualify for a "soft" loan; they require very minimal or no personal collateral as security, and they are generally offered at a much lower interest rate than traditional business loans.
Look For a Venture Capitalist
Another option to fund your franchise is to seek the assistance of a venture capitalist. You will generally be required to provide an extremely detailed business plan and an outline of every aspect of your proposed business. In order to obtain venture capital, you may also have to sacrifice as much as 50 percent of your business to obtain the required funding.
Consider Family Equity
Even if you manage to find funding for your franchise, you will need to invest some of your own money or "equity" into running the business. Hence, you need to make sure you are able to pay your bills every month and can handle all the necessary personal and business expenses. You should consider discussing your business with trusted friends and family members. They may be willing to invest in your new business venture if they see how determined you are to succeed.
Seek an Angel Investor
When I refer to angel investors, I don't mean the kind with shiny halos and white wings. This term refers to an individual who is wealthy and is not a professional venture capitalist. This person has investment money ready for a lucrative investment opportunity or one that will net higher returns than traditional investment methods such as the stock market.
Most angel investors will only consider providing funding for investment opportunities that will earn them annual returns of 25 percent or higher. Many of these individuals are long-term investors who have helped many entrepreneurial ventures get off the ground.
Talk to the Franchiser
Last but not least, be sure to discuss the situation with the franchiser. According to recent statistics, approximately 30 percent of all franchisers are willing to provide financing to the franchisee directly or via a third-party lender. Your franchising agreement will normally indicate if direct financing is available. Even if this is the case, you will most likely need to consider alternate sources of funding as well. Most franchisers will not cover 100 percent of the required funding to run the business.
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