Owning a franchise can make you wealthy and successful beyond your expectations, but to make your dreams reality, you need startup capital. On occasion, you will also need short-term financing to meet obligations when your cash flows become uneven. Below are some of the most typical ways to finance a franchise.
Your company’s capital structure consists of equity and debt financing. Equity financing consists of cash, property or productive assets that you contribute to your company in order for it to function. The most common type of equity financing is the contribution of cash. In order to maximize equity financing, you may need to have multiple owners or shareholders in your franchise. However, if you want to maintain majority or complete control of your business, you can choose debt financing instead.
Debt financing comes from many different sources, including bank loans with various terms and contractual obligations. It can be difficult to obtain a bank loan for a franchise unless your company has been in business for a couple of years. Financial institutions sometimes have a hard time lending money to businesses without a proven track record. A business loan from a bank may also need to be secured with collateral, which can make you as the business owner personally liable in the event the franchise fails.
However, there are other sources of debt financing. The small business administration can help you secure a loan for your business. There are also special programs available for veterans and individuals that belong to protected classes. A loan through the SBA may be your best bet, but you do have to meet qualification criteria. The best way to find out if you do qualify is to schedule meetings with SBA counselors and review the loan application materials.
If you’re looking for quick financing and you don’t want to take out a traditional loan, you can enter into a merchant loan agreement. Under loan agreements such as these, you receive a loan and pay it back through sending a percentage of your monthly sales to your lender. You can also borrow against your inventory and work out other arrangements with these types of lenders. This can get you the financing that you need to run your business and meet your operating objectives. Financing your franchise is a process that takes careful thought and planning. Otherwise, you’re likely to make a mistake and take on too much debt. To learn more about starting a franchise and protecting your assets, be sure to contact Shelton Law & Associates today!