Although it is not considered a source of traditional financing for franchisee, many franchises provide financing. During the current recession, many franchises found a way to offer a financial boost to the new franchisee. Here are some information on time relating to franchisor financing.
The first step in identifying whether the franchisor provides financing is to review franchise disclosure documents (FDD) and specifically items 10. The FDD section is related to franchisor financing. Another approach is to only ask for franchise sales if the franchisor provides financing.
The following are examples of financing provided by franchise owners:
Debt financing
A large number of franchisors provide good financing directly or through third parties. In many cases this financing is for equipment or real estate packages for franchise locations. There are franchisors who will hold the main rent and develop locations. The franchise holder will then sign a sub-rental with a franchisor which includes basic rent plus rental improvements. This arrangement does not burden the franchisee from having to get additional working capital to buy land and / or develop the site.
Another example of franchisor financing is for equipment packages that can be rented from the franchisor directly or from a leasing company that works with a franchise. Once again renting equipment is a source of funds for franchisee.
In most cases, this type of setting is usually found in franchises that require large investments, such as upwards of three hundred thousand dollars. Most often found in the restaurant or hospitality industry.
Franchise financing franchise purchases
There is a franchise that provides direct financing through the use of Not Promes. The records and conditions must be disclosed in the franchise disclosure document. Note can be used to finance a portion of the franchise costs or start the inventory purchased from the franchisor.
More new practices by franchise owners to emerge during the recent economic recession are the initial franchise cost discounts. This approach seems to increase popularity because franchise owners want to help individuals buy their franchise.
In terms of franchises do not provide direct financing, they may be able to help their franchises in obtaining 3rd party financing.
Other Franchisor Financing Options
There are several franchises that are willing to give a limited form of financing to an individual with impressive credentials. After operating several franchise companies, I have found a number of franchise candidates with talents, experiences and desires for certain franchises that do not have access to the required capital. In certain examples I found a way to accommodate their financial needs. One of the tools we use includes the funding section of franchise costs. I then included this feature in our franchise disclosure document. Having some of these individuals did not impress me and my management team with their credentials, we would not help him. If you display yourself as a strong candidate for the franchisor but with limited funds, you might be surprised by the response of the franchise owner.
