Franchise Financing: Three Creative Ways to Finance a New Franchise
By Jeff Bardos, CEO, Speritas Capital
Updated on April 22, 2021 – Greenwich, Connecticut
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Franchise opportunities have really expanded over the years and now span practically every industry and most investment budgets.
Buying a franchise can be a good way to start a business when you don't want to build it from scratch.
However, launching a franchise usually requires financing, and determining the best financing options can be difficult.
While some franchises have financing options and sources in place for their franchisees, you may not qualify for in-house financing. That's when you might need to get creative with financing your franchise.
Let's Look at Three Creative Ways to Finance a Franchise
Financing your Franchise using SBA Guaranteed Loans
Franchise Financing Using Equipment Financing
Franchise Financing using Real Estate Financing
1) Financing your Franchise using SBA Guaranteed Loans
SBA 7a loans for franchise acquisition can provide the funding necessary to launch a franchise operation. Both the SBA 7a and 504 programs may fit into your financing strategy. You should work with a preferred lender who understands the franchise industry, who can fast track loan requests, and who offers the best terms and rates. The SBA maintains a list of program-approved franchises - make sure the franchise you're considering is on that list!
2) Franchise Financing Using Equipment Financing
Almost every franchise requires equipment. In some cases, franchises use equipment from specific vendors to meet the standards laid out by the franchisor.
Depending on the terms of the franchise agreement, franchisees will have to either purchase or lease the equipment, vehicles, appliances, or anything else they need. Equipment financing offers capital specifically to purchase equipment, with flexible terms. Equipment financing can be rolled into an SBA loan.
3) Franchise Financing using Real Estate Financing
Some franchises require stand-alone establishments which are either modified to meet the requirements of the franchisor, or are built from the ground up.
In both cases, there are franchise financing programs designed specifically for purchasing property and for construction.
There are a number of commercial real estate financing solutions available which can be tailored to the needs of your franchise operation to get things up and running as quickly as possible.
Financing the Growth of Your Franchise
Some franchisees are ready, or plan to grow into a multi-location franchisee.
If you are looking buy out existing establishments or start a new location, there are a number of franchise financing options available.
Acquisition financing allows franchisees to buy out existing establishments and add them to their portfolios. SBA loans allow franchisees to open new franchises using the cash flow from existing franchise locations often at high loan-to-cost levels.
Read about a recently funded Speritas Capital SBA 7a loan for a 21 location franchise funded through the SBA.
Questions? Schedule a call with the author, Jeff Bardos, email, or call/text him at 203-247-4358.
Why Purchase a Franchise over another Business or over Starting from Scratch?
There are some compelling reasons to choose a franchise vs. starting a business from scratch.
Affordability
One of the most common reasons to choose a franchise is that it is affordable. Yes, buying and running a franchise is a significant investment, but it is less costly than what you’d have to invest to create a business from the ground up.
Brand Recognition
Another reason to choose a franchise is that you don’t have to spend time or money to build your own brand. You’re buying into an established brand that already has significant brand recognition and national marketing, ensuring immediate return on your investment.
Help from the Franchise Head Office
When you buy a franchise, you’re not going it alone. Most franchisors provide you with all the help you’ll need to get started, ranging from location identification and research, to training session to help you run the business.
Growth
Small businesses take time to grow. Break even can take years. A franchise can offer immediate growth, and deliver a return on investment well before you’d see anything from your own startup.
Less Risk
There’s risk inherent with starting any type of business, but there’s much less risk involved with owning a franchise. This is because the brand is already established, is known, and is profitable. Be sure you do your own due diligence to ensure this is true!
Run It Your Way
While you’ll be buying into an existing brand, depending on the franchise, you’re largely free to run it your way. That means you set wages for employees, determine compensation and benefits packages, and all the rest.
More Profitability
The earnings of franchises are generally substantially higher per year than standalone businesses, meaning that you recoup more of your investment immediately and build profitability faster.
Ready to Talk about Creative ways to Finance your Franchise?
Speritas Capital Partners provides a wide range of franchise financing solutions to emerging and growing franchisees. We're here to help you think through your financing options and connect you with the right lender for your investment situation and goals.
Schedule a call with Jeff Bardos, or call/text him at 203-247-4358.
Additional Related Reading:
Read more about all your Asset Based Financing options.
Read the Pros and Cons of Accounts Receivable Financing
Read 8 Steps to an Accurate Cash Flow Statement (with template).
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 30 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your franchise financing questions
Schedule a call with Jeff using our online scheduling tool.
Speritas Capital Partners specializes in complex credit, collateral and cash flow situations and we never take upfront fees.
Because Speritas Capital is a debt advisory firm, we have access to a wide variety of asset-based lending structures. We’re not beholden to any one lender or structure so we can use our creativity and experience to design a structure that truly fits the needs of our clients.
