So, you’ve decided to buy a franchise? If you’re considering this option, your next thought might be how do I secure the financing I need to get started? The initial investment is very important. It includes all the expenses you will incur to get the ball rolling: franchise fee, grand opening, initial inventory, signage, leasehold improvements, supplies, equipment and more.
How Much Is the Initial Investment for Franchises?
The initial investment ranges between $75,000 and $500,000 for most franchises. However, the average cost typically floats around $250,000. Keep in mind this initial investment will vary by both industry and brand. Some have even been known to reach $1 million or more.
As high as that sounds, you’ll be glad to hear that most franchises are very doable. There are many viable options that fall between $100,000 and $250,000. With the right financing strategy, you can get things on the right track and create a plan that allows you to comfortably afford it. Many buyers opt for a combination of financing options: SBA loans, conventional business loans, 40l(k) rollovers, alternative options, franchisor in-house programs, etc.
How to Choose the Right Option for Your Franchise Financing Needs
The first step is to take an honest look at your existing situation. Do you have personal funds you can use? What is your current net worth? What do you have in the way of liquid assets? Many franchisors and lenders expect prospective franchisees to have some kind of personal funds they can put toward the initial investment.
“We recommend and assist clients in conducting a cost-of-capital analysis as well as a general fundability or prequalification discussion with a franchise finance expert early on in the process. Based on my experience, it’s rare that we cannot find a solid funding strategy that works,” says franchise advisor Mariel Miller.
Most Popular Franchise Financing Options
- Franchisor Financing
Many aspiring franchisees immediately turn to their prospective franchisor for more information on their tailored financing solutions. These options are exclusively designed for their franchisees. This is probably the most common way to finance a franchise. Some of these programs even provide the funds to purchase equipment and other resources you need to get started (not just to cover franchise fees).
- Traditional business loan
Another common way of financing a franchise is through a traditional lender. With this option, the lender will offer you a lump sum of cash up front. These funds are then repaid, plus interest, in monthly installments over a set period of time. The disadvantage of this option is that many aspiring franchisees do not qualify due to poor credit or lack of financial history.
- Alternative lenders
Alternative lenders have experienced a surge in popularity in recent years. They not only offer more flexible financing options than traditional lenders, but they have also become known for the speed and simplicity of their application processes. With a merchant cash advance from First American Merchant, for example, you can secure cash in as little as 24 hours. As a high risk specialist, FAM is also experienced at working with merchants that have poor or no credit and limited financial history.
Looking for a fast and painless way to secure franchise financing? First American Merchant offers a straightforward, online application you can complete in just minutes. Secure the cash you need in as little as 24 hours. We are committed to helping merchants secure the funds, support and tools they need to grow a successful business venture.