Franchise Article

For many people who want to be in business for themselves, it is not the pressure of running their own small business or business franchise that keeps them from taking the next step, it is the cost of purchasing that business or franchise, and then maintaining the initial investments required to run a business before profits overtake the cost.

Typical trends in small business indicate that the first two years of a small business can be the hardest, and sometimes it takes as long as three years to reach the profits that truly make being in business worth it. That time period between starting a new business and realization of profits can be greatly reduced by considering buying a franchise.

Often times, because of the success of a proven business model and a recognisable name and product, the franchise market can reach productivity much faster. There is still a sizeable cost involved in purchasing a franchise, however, and even low-cost options might still be out of reach. This is particularly true if the desire to own a business comes from a need to increase financial standing, which can make coming up with the net worth and initial investments required by franchises a difficult task.

Luckily there are many financing and loan options that are available to the franchisee. Many franchises themselves have partnerships with third party franchise lenders and some even offer financial assistance directly. There are some basic steps that can help the prospective franchise owner acquire the loan and financing that allows them to go into business for themselves.

The first type of financing that many franchise and small business owners find themselves in need of is invoice financing. Especially in the volatile economic status of a newly purchased franchise, cash flow is extremely important. When a service or product is provided to the customer, an invoice must be issued. Typically the customer then has between 30 and 90 days to make a payment on that invoice. This could mean an entire financial quarter between when the service is provided and when the money from that service arrives. Many new businesses simply do not have the financial depth and stability to operate for three months without any cash flow. This is where invoice financing comes into play. Decision Finance, the leading invoice finance provider, is one particular company that allows a business owner to receive payment in advance within 24 hours of issuing an invoice. Naturally there is a financing fee, but the ability to access the funds for the service provided 29 days earlier can often allow a business to move forward and provide more products and services than would normally be possible in the early phases of the company's development.

Typically a business that deals in high volumes of sales, inventory, and products, needs to have a certain level of credit to purchase inventory. This coincides with a need for overdraft protection, which allows a small business franchise the ability to purchase the products, supplies, and advertising they need without being dependant on cash flow to provide all of the up front costs of operating the business. Finding a loan for overdraft protection has become much simpler in the UK, and where many financial assistance programmes were previously offered to only select, large, stable businesses, the small franchise owner is now able to access many of these programmes as well. Since an overdraft protection loan or inventory credit account is an unsecured type of loan, it is most likely that a business owner will secure this type of financing from a financial institution that they have developed a good business relationship with. It may be difficult to receive this type of protection initially from a new financial institution and other financial loan methods may need to be sought out.

For the individual that has already found the particular franchise or business for sale that they desire, a commercial mortgage is most likely the type of loan that will be needed to finance his property or land. Much like a residential mortgage, this will be secured through a financial institution that provides mortgages. Interest rates, repayment terms, and prepayment penalties are critical in the feasibility and affordability of the loan. It is imperative for the franchise owner, when finding a loan, to consider what the likelihood of moving to a new location or re-selling the property will be when thinking about the different types of commercial mortgages available.

Finally, when developing a successful franchise opportunity, many business owners need to purchase or acquire an expensive piece of equipment or machinery. Leasing products can sometimes allow the franchise owner to acquire what they need without acquiring legal title. There are many different types of asset-based lending, which is a form of secured financing, and some will allow you the option of re-leasing a new piece of equipment when the term has expired. Other types of leasing or asset based lending will have an ownership buyout or purchase price after the term of the lease, providing legal ownership of the equipment.

Some franchises refer their owners to a preferred financing institution. For certain types of loans that are more risk based, or unsecured, the franchise in question may have a financial institution that they have established a relationship with. For example; larger franchises like WSI Internet, the world's leading internet and technology franchise, will help to connect you with banks and lenders that they have experience with and can often negotiate a better rate for your loan.

Whether your goal is to get your business off the ground, or to run and maintain a new business, the financing options are out there for small business and franchise owners. Understanding the necessary relationships, the particular offerings of a given franchise, and what type of financial needs are required are the keys to know where to go for the type of loan that will allow each business to experience profitability.