franchising aspects Nov, 14 2009

Funding formulas in franchising

Limited financial resources can restrict you from fulfilling your entrepreneurial dreams. Making arrangements for finances is not a problem if you are aware of the sources available. Read below to know more

By Ramanjit Kaur
Feature Writer
Funding formulas in franchising

Once you have prepared a blue print for the franchise that you aspire to take up, the next step is to make the arrangement of the financial resources. There are a lot of sources from where you can take monetary help. But when it comes to money everybody desires something in return. So when you opt for any financial aid from any of the available resources you have to be cautious. Let us discuss the various financial resources and aspects to be considered before you take up the final decision.

Bank loan

The best possible way to acquire finances is to approach a bank. These days franchisors also help their franchisees in getting their loans passed from banks. Few franchisors also arrange for third-party loans or have an in-house loan facility. Some franchisors have registered their company with the Small Business Administration which reduces the paperwork and makes it easier for the franchisees to get SBA loans (guaranteed by the government). With the current economic status, majority of franchisors are opting for SBA loans to ensure their business survival and growth.

But you have to read the terms and conditions of taking the bank loan very carefully. There are some banks that may ask you to deposit some security amount or mortgage your property to take the loan, which may later trouble you. Hence, you should have a complete knowledge of the provisions before finalising your decision of taking a bank loan.

Expensive financial services

A franchisee can even approach a finance company or any other commercial lender for a business loan. They can provide you with easy available funds. But there is a major drawback in taking the help of such companies. These companies borrow money from well sound moneylenders and later lend it to you with higher interest rates. Therefore, it becomes necessary for you to keep in mind the various aspects of owning a franchise (may or may not work successfully) prior taking money from such lenders.

Using your retirement funds

Unlike other countries, India does not have any rollover retirement account for the old citizens that allow them to use money to buy a franchise. However, there are insurances or retirement plans that enable you to invest in market-linked plans, which can further provide you with potentially higher returns in the long run. You can use this money to purchase a franchise once you grow old. However, you should have enough information of the sector you are planning to invest in your hard-earned money.

Spoiled relationships if borrowing money from family or friends

The best you can do is borrowing money from your friends or family members. But on the other hand, it can be a dangerous area to raise fund from. Therefore, it is important to make it clear to a friend / family in advance regarding the investment of the borrowed money. In case of a loan, your friend or family may ask you to pay back within the given notice period. On the other hand, the person may be expecting a share of your profits. These kinds of issues generally harm the relations.

The advantage of a franchise system is that the franchisors are always willing to help their franchisees in every possible way. So, you can consult your franchisor regarding your financial problem. He may help you in getting easy loans, may arrange to lease your premises or may allow you to pay the franchise fee installments. But do keep in mind the limitations in raising funds.

Related: Optimising vendor selection

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