Franchise Financing Options
Recently I've received a few questions from our users about what their options are when it comes to financing their franchise. So I figured it might be a good idea to put together a quick post outlining some of the options out there for financing your new franchise.
- One of the most common financing options for franchisees is by going directly to the franchises themselves. Many franchises offer financing opportunities at some level which can help to seriously alleviate some of the financial burden of opening a franchise. The actual amount of financing available from a franchise varies greatly from franchise to franchise and what exactly they are willing to help out with also varies greatly. Some franchises will defer part of the franchise fee, offer temporarily reduced royalties, or help cover the costs of necessary equipment. While the interest rates on these forms of financing can be higher than traditional bank loans they are also sometimes available without collateral requirements. The terms and conditions of these financing options vary from franchise to franchise so make sure you check with your franchise.
- Another common option is to use commercial bank loans, as if you were financing any other major purchase. Like financing from franchises themselves, the financing available from commercial banks can vary greatly based on the exact situation you are in. Oftentimes the franchise you are opening can play a big role in your ability to secure financing from a commercial bank. If you are looking to open a franchise with a more proven track record then the bank may be more likely to provide you with a loan, as they view it as a lisk risky move. The downside to this is that if you are looking to open a smaller franchise you may be required to provide additional collateral to secure the loan.
- There are also options out there to help you out if you need to use commercial bank loans. The US Small Business Administration can provide SBA loans to franchisees to help them out. SBA loans are an interesting situation because they aren't direct loans to franchisees normally. Instead these loans act as guarantees to the banks making it easier for franchisees to acquire traditional small business loans. These can be especially useful for franchisees who are looking to open smaller or lesser known franchises that banks may be wary of taking on.
These are the three primary avenues for financing your franchise. There are other options out there, but these are probably the best places to start.
If you want to learn more the Wall Street Journal and SBA both have pretty solid resources on the topic.
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Building a Relationship with your Franchisor
It’s no secret that investing in a franchise involves a lot of effort, a tremendous amount of commitment, and a wealth of connections to maintain. While it’s true that much of this work amounts to running your own business, it’s important to recognize that there are other unique factors to consider. In particular, the relationship you have with your franchisor can be one of your most valuable assets and a key to your success. Let’s take a look at a few areas of focus that can help build a strong, mutually beneficial relationship with your franchisor.
My Franchise Agreement is About to Expire – Now What?
The answers to these questions will depend on the language of your specific franchise agreement, although some general principles can be identified:
Advertising and Promotion Watch: McDonald's Monopoly is Back
This month sees the return of a venerated promotional campaign, McDonald’s Monopoly. The promotion first began in 1987, and in the last decade has become an almost yearly tradition. Each year, certain McDonald’s products come with Monopoly game tokens, each with either a space from the Monopoly board or an instant win prize for items such as a small fries. Larger prizes are won by collecting all of a group of Monopoly properties, usually three, but sometimes two (Illinois Avenue, Indiana Avenue and Kentucky Avenue, for example). Each group of properties have one whose piece is much rarer than the others; for most of the groups, it’s the last alphabetically (Kentucky Avenue for the red properties, Ventnor Avenue for the yellow), but for the dark blue, it’s Boardwalk, as it is the last and most expensive property on the board. More recently, McDonalds developed an online counterpart to its in-store Monopoly game in which customers can roll virtual dice, or more recently pick one of three chance cards for various prizes.