Business Acquisition Loans for Emerging Franchise Owners
Once you have made the decision to open a new franchise, you need to obtain funding. Besides the normal expenses such as inventory, equipment, and real estate, there are extra unique costs inherent in acquiring a franchise. Here are some details to keep in mind as you consider the best options for your business acquisition situation.
Advantages and Disadvantages of Acquiring a Franchise
When you obtain a franchise as opposed to a stand-alone business, you acquire an established business model and the right to use the company’s name, brand and products. This gives you a keen edge in marketing, as your business is already well known. You can start with an established base of loyal customers and state-wide or national recognition instead of from scratch.
On the other hand, with the business acquisition of a franchise you lose a measure of independence, as the franchiser may require approval on location, design, range and specifics of products, and other details. Additionally, acquisition of a franchise generally includes an initial franchise fee as well as regular royalties and marketing payments to the franchiser.
Basics of Business Loans to Franchises
The brand recognition and amount of outlets of the franchise you want to purchase have significant impact on your financing options. Lenders obviously consider that established brands carry less risk. Approved loans typically cover not only the standard costs of opening your business, but also special expenses such as the franchise fee.
The Small Business Administration often helps potential franchise owners to acquire loans. The SBA does not directly loan money, but reduces risk by guaranteeing all or a portion of business loans offered by authorized lenders. Many franchisers are on an SBA franchise registry, which helps to speed up loan approval for your business acquisition. Additionally, some franchisers aid funding directly by deferring franchise fees or offering internal financing arrangements.
Consider your options carefully before financing your new franchise. For more advice on business acquisition loans for franchises, contact Muth Capital.