Franchises: Various Funding Opportunities

There are more ways to fund a franchise business than through traditional loans from financial institutions. Alternative franchise funding allows entrepreneurs who may be seen as unworthy for lines of credit or loans the opportunity to grow their franchise locations in a less than attractive economy.

Out of Pocket Funding

One of the riskiest alternative funding options is out of pocket financing from a personal savings or retirement account. This franchise funding strategy basically amounts to taking a loan from your future financial stability. Many entrepreneurs are of the opinion that their money is safer and can yield a higher profit level if it is invested in developing a franchise versus sitting in the stock market. To direct funds from a retirement account into the growth of a franchise, there are very specific and strict guidelines which must be adhered to. This kind of franchise funding should be done under the direction of a financial expert.


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Informal Venture Investor

More commonly known as an angel investor, an informal venture investor often has less strict credit worthiness requirements for investment opportunities and is much more interested in funding a project they believe in. Usually, an angel investor will ask for a profit sharing or equity ownership deal, in which a portion of the franchise is purchased with the capital given in investment. This kind of trade-off is in lieu of repayment for the money being invested, which reduces the amount of debt attached to the franchise.

Inexpensive Franchising

As a franchisee, it is often the best course of action to find a franchise you can get behind that is also inexpensive. An inexpensive franchise opportunity will require less initial monetary investment and, in the long run, will call for a lower over-head in day to day operations. The ideal inexpensive franchise will be one you can get off of the ground with the on-hand cash you have. This will completely eliminate the need to fund a franchise through loans, lines of credit or outside investors.

Loans and Leasing from Third Party

Franchise business owners can also set loan and lease opportunities for franchisees with third party vendors. Individual franchisees can borrow the funding or lease the resources they need from the third party with the parent company’s guarantee of payment. By standing behind the franchisee as a guarantor, the franchise makes the leases and loans realistically affordable for the franchisee. However, franchise business owners should be aware of the contractual commitment they are making on the loans being taken out by each franchise.

Alternative franchise funding resources can help business owners maintain franchisee success in any market climate.

Danny often writes articles helping small businesses who are having trouble with cash flow. He is currently an employee at Factor Funding Co, which is a nationwide small business funding company.

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