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Franchise Financing - Finding the Money

The cost of buying a franchise can be substantial, but you don't have to be a trust fund baby to get into the franchise of your dreams. Where is the funding going to come from? That's the number one question franchise buyers ask. There are numerous sources of capital, but start with these basic steps first.

  1. Talk to the franchisor. About one in three franchisors provide franchise financing directly or have arrangements with third party lenders. You will find any financing arrangements spelled out in Item 10 of the FDD (Franchise Disclosure Document). Even if the franchisor doesn't have money to offer, it is still the best source of information about your financing options.
  2. Look within. It is a common misconception that you can or should borrow all the money to open a franchise. Be prepared to come up with at least 25 to 30 percent of the total start-up costs. To assess personal resources, start by preparing a personal financial statement (you'll need one to present to lenders anyway).
  3. Ask family and friends. This is one of the most common ways to finance a franchise. After all, who knows your dreams and capabilities better? Plus, they want to help you succeed.
  4. Call your accountant. Ask your accountant to recommend a banker. A good accountant - one with small business experience - is usually a great source of leads.
  5. Find a specialist. You should start at the bank where you do your personal banking, but there's a good chance you won't get what you need there. Local banks are often unable to fund franchise projects. Your chances will be much better with independent lenders like GE Capital Franchise Finance that specialize in franchise lending.
  6. Search the SBA Franchise Registry ( The SBA's small business lending guarantee program is a key source of loans. This program for new franchise buyers is much easier to access since the creation of the Franchise Registry, a central database of information about franchisors that have been certified by the SBA.

Breaking Down an FDD

Once you've found a franchise (or multiple franchises) that you are interested, the real research and diligence process begins. You need to figure out whether the franchise you are looking at really makes sense for you from a financial and lifestyle perspective. Your best source of information for all of this is the Franchise Disclosure Document, or FDD.

Running a Franchise from Home - Is it Right for You?

The U.S. Labor Department's Bureau of Labor Statistics recently con­ducted a survey of home-based businesses and estimated that there are just over four million self-employed, home-based workers. (The number of franchised businesses in this total was not calculated.) However, the National Association of Home-Based Businesses, in Owings Mills, MD, puts the number at closer to 50 million people. Whatever the accurate number is, it is a number that everyone agrees will only continue to rise.

What Draws Investors to Franchising

Most prospective franchisees are drawn to the business by previous frustrating experiences in their past employments. This could have been caused due to lack of control over one’s work environment, being bound to report to superiors and insufficient room to exercise one’s authority at their work place. The micro- managing bosses, unresponsive organizational structures, or lack of voice in the organizations process are a few of the reasons why many people decide on investing in franchises as their new career. By investing in this business they take control over their own life with a little risk as compared to starting their own business from scratch.