Franchise Business Finance

As you have already opted in favor of a franchise business, you must now muster up the requisite capital amount to meet the cost of the project. Of course, you cannot avert a certain gestation period until your business actually starts making profits. So it is advisable to be prepared for at least six months of living expenses and working capital in advance. Keeping in mind that under-capitalization and inadequate flow of cash can really victimize the potency of your business, adding livelihood expenses and working capital to the total cost of your project will only prove prudent.

To begin with, you must pen down a business plan showcasing your reliable character track record, business acumen, experience, assets within access and any other useful information that may reinforce you as a suitable candidate for sanction of loan from the viewpoint of a bank. It is usual of small businesses to utilize their personal/ retirement savings partially and opt for Home Equity Line Of Credit (HELOC) to meet the rest of the business requirements. You may check out whether your state also allows you to have HELOC.


By availing HELOC, you would be able to flexibly borrow up to 85% of your home equity for 5 to 15 years of maturity term. HELOC allows need-based withdrawal of credit money on the lines of credit card. What's more, you can pay off the principal and use the credit again!

If HELOC does not suit your idea or resources, you may always go for traditional commercial bank loan, which is generally easier to secure for a franchise business than otherwise. Apparently, the good track record of your franchiser's business backs your loan application as well.

If by any chance, it does not work out, you may approach the SBA loan options that are specifically designed to meet loan requirements of entrepreneurs rejected by the traditional banks, for equivalent rates and terms. Specifically, the LowDoc program of SBA guarantees you up to 85% of the total loan requirement, subject to the upper limit of 150,000 USD, with response within 36 hours of submission of duly filled up application. A maximum of 2 million USD for up to 25 years of term may be requested, wherein any loan application above 150,000 USD is guaranteed only 75% of the total loan amount.

Government's PLP is steps ahead of SBA in quick sanction of loan for identical terms and conditions. Basically a careful selection of SBA delegates, PLP undertakes everything from approval, closing, servicing to bankruptcy authority and responsibility on the behalf of the SBA.

As per reliable reports, about 30% of the franchise businesses are funded by their own franchisers. You may also check out the possibilities with your franchiser. Your franchiser may also have connections with specialized leasing companies that may provide you with lucrative funding options for property, equipment etc. Thus, you will be able to minimize the initial burden on your pocket in these connections.

At last but never the least, you can always go for Venture Capital and angel investors to fund your project. However, caution must be exercised as regards the kind of returns desired by them, including the extent of interference and regulation demanded in your franchise venture. Understandably, you would not like too much meddling in your business. Would you?

You are advised to evaluate all possible sources of capital before zeroing down to anyone. In any case, you will have to arrange at least one third of the total capital requirement yourself, as any bank shall lend you only two third of the total project cost.