Should You Borrow Funds for Your Franchise Business?

business loan

Just like any big move in life, discussing finances is an important step in the getting there process. From looking at budgets, weighing the pros and cons of borrowing, vs. investors, vs. putting up your own collateral, it's a step that must be sorted out before you can get started. This is true whether buying a house, going on vacation, planning for retirement, attending college, and so on.

in fact, it's maybe the only first step you can take. After all, you can't obtain the rights to your franchise location before first purchasing them.

But how do you know where to find those funds? Or what the best move will be in obtaining them? By doing your research and applying them to your status quo and goals.

Weighing the Financing Outcomes

If this is your first business or first franchise, you might have fewer contacts to look toward as investors, leading you toward lending. If you have more capital to offer, you might lean toward lending. Then again, you might have plenty of investors lined up on your team.

The combination possibilities are endless.

But at the end of the day, a funded franchise is one that's open for business. Getting there, you simply want to make sure you make the best financial decisions for yourself, your family, and for your business going forward.

Biting off more than you can chew or miss stepping can lead you down a dark tunnel that dims the excitement (and success) of your franchise location. Avoid this black hole by doing your research up front and planning for the best franchise outcome possible.

Personal Assessment as a Franchisee

First things first, determine how much money you have vs. how much you need. By knowing the size of that difference, you can make an informed decision. If it's a little, you're likely to be able to come up with those funds. And if it's a lot, you'll need more help getting you to the finish line.

Now, look at factors like credit. Do you have a good credit score? Do you have enough collateral to put up against the business? What do your personal bills look like? Can you handle putting a business loan on top of it? If it helps, talk with a banker or financial advisor about your situation and have them weigh in on what's best for your budget. With more information, you can better weigh all sides against your personal goals and find a solution that works for your personal life, and for your franchise.

Next, it's time to talk about investors. Do you have anyone who is considering investing in your upcoming franchise? Have you asked around? Are investors something you've considered? While it can be helpful from a financial side, some business owners choose not to have a board that votes or collects profits. There's no right or wrong path, simply a decision of what you prefer as a franchisee.

Looking at the Pros and Cons of Business Financing Options

Now it's time to take all you've learned and weigh the outcomes. Do you feel more prepared to apply for a business loan? Or would you rather pitch to and work with investors? Do you have a hybrid option that calls for both? List out benefits and drawbacks to each scenario.

Through this process, you should take your own preferences to heart. If you prefer to call the shots, then call them. If you want a team of seasoned pros behind your every step, make it happen.

As a franchisee, there are many decisions you can make in order to help the business thrive. Your job is to look at every option available, determine what's best for the brand (and you as the franchise owner) and to make the best fit a reality. Only then can you move forward into setting your brand up for success. This initial research process allows you to gain confidence in yourself as a business owner, and in the franchising process.

Borrowing is a great way to fund your franchise operation, but it certainly isn't the only way to start your business location. Look at your goals and consider talking with a numbers pro to create your best funding scenario.

By Bethaney Wallace | Oct 04, 2019 | General Franchise Information