What are the best ways of financing a franchise venture?
Obviously the size of the “total initial investment”, Item 7 of the UFOC, will dictate the amount of financing, if any, required to both qualify for a franchised business, and the decision to move forward.
With the explosion of the SOHO (small office, home office) segment, and its attendant franchise offerings, it’s quite possible that no financing is required, or at worst, self-funded in the form of personal credit or even a credit card. So, in that I am non-believer in debt, I like the least possible amount, and lean toward these low start-up cost franchises for many beginners.
Of course, there is the old saying that “you can get a loan once you prove that you don’t need one”. And frankly, because that is a rather true statement, I think it is ill advised to push one’s debt load, especially in the form of a new franchise. (Note: I am not discouraging taking a chance in business, but often, the “type” of business that one chooses “might” be shoe-stringed on an independent basis as opposed to the “all or nothing” investment that a franchise represents.)
Now, beyond my personal opinion on debt loading, there are all manner of investment scenarios ranging from family money, SBA guarantees, home equity lines, and many, many more. Of course, many quality franchises have connected themselves with financing alternatives, and naturally, in the equipment intensive offerings (such as restaurants) one can always choose lease versus purchase.
Just remember, debt must be serviced, so an even more detailed business plan must be generated that considers many cash flow scenarios.