For many entrepreneurs today, franchise financing is a good way to get in the game of Main-street. There are two reasons for this: 1) a franchise is more likely to succeed than a mom-and-pop shop, and 2) franchise financing is more likely to be approved by a bank than a regular business loan – especially when it comes to franchises vs. start-ups.
Franchises Vs. Mom-and-Pop Shops
To the grief of some, mom-and-pop businesses all over the country are being replaced by large chains. This is particular true in the restaurant industry. Though this is misfortunate for the independent restaurant owner, franchises play a major part in building main-street and provide ample opportunity for entrepreneurs. Here are some of the reasons franchises succeed (from small business expert Bob Coleman):
- Franchises already know how to run their business as efficiently as possible
- Franchises have marketing power
- Franchisees can receive mentoring by experienced franchise owners
From the lender’s perspective, financing a franchise with a history of success and a strong market presence is a great opportunity.
Franchise Financing Options
Sometimes the franchisors themselves can give you a loan. In this scenario, because the franchisor assumes all risk and knows exactly what goes into making the franchise successful, they can often be more flexible than a bank. Check out the franchise registry for loan information on a specific franchise.
Unfortunately, in the current economic climate, banks are very selective about who they give loans to. Only with a good credit score, the right amount of collateral and cash flow, plus a strong character, the banks will finance you. However, if you have a less than perfect credit profile, you may need to either turn to alternative lenders or start building business credit. To understand what options will work best for you, see Lendio’s loan match tool and find out if you qualify for franchise financing.