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Funding the Franchise Dream: It's Time to Think Beyond Conventional

Tuesday, 04 September 2012 23:06

franchise financingAccording to a recent poll by the Federal Reserve Bank of New York, small businesses are still experiencing difficulties in obtaining loans from traditional lending institutions. The poll indicated that smaller loans were actually more difficult to obtain; businesses seeking funding under $100,000 had the lowest success rate of those surveyed. These results are echoed in the franchise marketplace; more franchise loan applications are being denied or underfunded by the traditional lending marketplace. As a result, many small business borrowers are seeking alternative funding sources in order to purchase franchises or expand their existing franchise business.

Breaking into the franchise market

The cost of purchasing a franchise can vary widely from market to market and among various companies. Some small-scale sandwich shops require less than $50,000 in franchise fees, while larger, more established businesses may cost significantly more. Typical costs of acquiring a franchise include the following:

  • Franchise costs
  • Attorney fees
  • Construction costs
  • Inventory
  • Any necessary business licenses
  • Marketing and promotional expenses
  • Equipment
  • Insurance
  • Utilities
  • Salaries

Purchasing an existing franchise location may be easier than starting a new location from scratch; however, renovation and promotional costs should be taken into consideration when evaluating the total cost of any franchise opportunity. Before agreeing to purchase an existing franchise, be sure to examine the financial records for the past three years; this will provide a solid overview of the current earnings and potential for growth and may identify problems that could reduce profitability.

Factors in franchise loan evaluation

The emergence of numerous new franchise opportunities may be a factor in this scarcity of funds; bank officials may be unfamiliar with these new names in the franchise market and may consider them to be high-risk investments. Lack of collateral can also present significant challenges for first-time purchasers. Many lenders are requiring that borrowers provide a large percentage of the purchase price from savings or other financial assets before they can be approved for financing of the remaining amount. Retirement accounts, marketable securities and other personal property assets can also be used as collateral for franchise purchases in some cases.

Thinking beyond conventional

Given the current scarcity of business loans, New York entrepreneurs are looking to alternative methods of financing to fund franchise purchases. While some borrowers can draw on personal savings, loans from family members or other financial resources, microfinance arrangements and online small business loans can also provide the needed funds for franchise acquisition. By exploring these less common financial arrangements, aspiring franchise owners may be able to achieve their dream more quickly and at more attractive financing terms than with traditional lending institutions.

CNF Exchange provides an innovative way for borrowers to find an investor online and to acquire the funding they need for their small business franchise. Borrowers can sign up for a wide range of services designed to help them get financed quickly and on the most advantageous terms possible. CNF Exchange connects borrowers with investors to benefit both sides of the transaction. Whether you're looking for an investment opportunity or for funding for your franchise dream, CNF Exchange can help you achieve your financial goals.

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