Franchises are consistently vulnerable to cash flow issues thanks to the many mandatory expenses they face throughout the year. On top of operational expenses and growth-related investments, franchises must obey their parent company’s fee guidelines, or “Franchisor.” Royalty and advertising fees are deducted from weekly or monthly sales. Some franchise owners must pay for new employees to undergo special training programs. Certain upgrades might be required for specific dates, and the national marketing campaigns from the deduction mentioned above must usually be supplemented by local advertising. Franchisees must also plan for living expenses alongside these costs to ensure they have sufficient financial resources during the initial phase of establishing a franchise.
The challenge is even greater for franchise owners looking to open new locations. They must pay a “franchise fee” amounting to tens of thousands of dollars, and the aforementioned deductions begin as soon as the new location opens its doors. Combine these expenses with inevitabilities like new equipment or furniture, and you can see why business loans are popular for franchises. Multiple large expenses can easily pile up simultaneously, making it extremely difficult to raise profits or save money.
The challenge is even greater for franchise owners looking to open new locations. They must pay a “franchise fee” of tens of thousands of dollars, and the deductions mentioned above begin as soon as the new location opens its doors. Combine these expenses with inevitabilities like new equipment or furniture, and you can see why business loans are popular for franchises. Multiple significant expenses can easily pile up simultaneously, making raising profits or saving money extremely difficult. Different loan types, such as SBA loans, business term loans, and lines of credit, can help cover these significant expenses.
And don’t forget that franchise owners don’t get to choose when to schedule expenses or which suppliers to work with, unlike their independently-owned competitors. The franchisor might have passed down its business model. Still, it’s up to the franchise owner to figure out how to grow the business without endangering profits or failing to cover mandatory expenses. Structured monthly payments can help manage cash flow by spreading the financial burden over time.
United Capital Source has many years of experience facilitating Small Business Loans for Franchises. We have access to all types of business loan products. Contact us today for your FREE business funding consultation!
Lots of people crave the responsibility of entrepreneurship but aren’t up to the task of starting an entirely new business. Maybe they don’t know what kind of business to start…
Being a hardware store means you need to have inventory. Inventory means you need to have space. One of our Ace Hardware franchise clients used the funding to expand their current store and continue to grow this location.
Part of being able to carry the name of a prestigious franchise means that you need to keep up with the current store design trends. One of our Subway clients used their funds to update the interior look & feel and exterior signage.
This Holiday Inn saw a prime opportunity to expand one of its wings and did so in their offseason to book more stays during the busy season.
This Goodyear location was short on cash flow from hiring a few more employees, so they needed a boost fast! This client used their funds to restock their location for the upcoming season.
This UPS Store franchisee saw a great opportunity to expand into a great location with tons of foot traffic in a business district. We helped them get the funding they needed in time to secure this location and expand their stores.
United Capital Source offers franchise business loans, or financing, to help franchise owners invest in growth, open new locations, and stabilize revenue amid upcoming bills or deductions. We understand franchises deal with an above-average amount of weekly and monthly expenses. This is why our franchise business loans tend to carry repayment systems different from those assigned to an independently owned business. Terms will be structured to ensure your deductions do not prevent you from paying your rent and employees at the end of the month. To qualify for financing options, many entrepreneurs must show a personal net worth statement to potential lenders.
Many entrepreneurs need to apply for a loan to cover franchise financing costs because they cannot afford them out of pocket. Certain lenders can fund in as little as 24 hours, depending on the amount and the borrower’s credentials.
Our franchise clients have been recommended various business funding programs, such as merchant cash advances or short-term working capital loans. Both options can allow you to cover a massive upfront cost, increase staff, launch a local ad campaign, or pay a series of coinciding bills. Since profit margins for restaurants and retailers are already low, we can provide the means to make necessary payments ahead of schedule and lessen the blow from weekly deductions.
Business lines of credit are well-suited to experienced franchisers who want to expand current operations rather than first-time franchisees. Business lines of credit let borrowers access cash up to a set limit as needed. Interest only accrues on the outstanding credit balance with business lines of credit. Borrowers can repay their balance and reuse their credit line until the draw period ends. The draw period on business lines of credit is usually between 12 and 24 months. Business lines of credit can be used for ongoing operating costs. Business owners can utilize their entire line of credit to finance a franchise.
Equipment financing can allow franchisees to acquire new equipment and machinery to fuel their operations. These business financing options use the financed equipment as collateral for the loan.
Short-term business loans can be secured through online lenders. Interest rates on short-term business loans can range from 10% to 99%. Short term business loans usually have one-year or less repayment terms, with some lenders offering terms up to 24 months. Short-term loans typically have flexible qualification requirements compared to traditional loans. The total cost of short-term loans can be higher than that of traditional loans due to interest rates and fees. Short-term lenders generally require less documentation for loan applications. Short-term loans usually have flexible qualification requirements compared to traditional loans.
Franchise financing is crucial to starting a franchise business. It involves securing funds for franchise fees, working capital, and other business start-up expenses.
Franchise financing options are available to help entrepreneurs secure the necessary funds. Understanding the different types of financing, such as equipment financing, franchisor financing, and standard business loans, is essential. By exploring these options, small business owners can find the right financial solutions to support their franchise business and ensure long-term success.
The Small Business Administration (SBA) offers various loan options, including SBA 7(a) and 504 loans, to help small business owners achieve their business goals. These SBA franchise loan options are partially backed by the U.S. government, making them more accessible for many entrepreneurs.
The SBA allows franchisees to borrow up to $5 million to open a franchise or a small business. SBA loans are partially backed by the U.S. Small Business Administration, making them more accessible for some business owners.
SBA 7(a) loans have terms up to 25 years for real estate and 10 years for working capital. SBA 504 loans can only be used for specific purposes, including purchasing land and real estate for a franchise. SBA CDC/504 loans typically require the business owner to provide at least 10% of the funding.
SBA loans involve a lengthy application and approval process compared to traditional loans. To qualify for an SBA loan, business owners typically need good credit, strong annual revenue, and at least two years in business.
Equipment financing is a type of financing that allows business owners to purchase or lease equipment necessary for their franchise business. This type of financing can be used to acquire equipment, such as machinery, vehicles, or technology, and can be secured through traditional, online, or alternative lenders. Equipment financing can be viable for franchisees who need to purchase equipment but may not have the necessary funds upfront. The interest rates and repayment terms for equipment financing vary depending on the lender and the type of equipment being financed. By leveraging equipment financing, franchise owners can ensure they have the tools and machinery to operate efficiently and grow their business.
Franchisor financing is a type of financing offered by the franchisor to help new franchisees secure the necessary funds to start their business. This type of financing can be in the form of a loan or a grant, and the terms and conditions vary depending on the franchisor.
Franchisor financing can be a good option for franchisees who have a good relationship with their franchisor and can provide a competitive rate. However, it’s essential to carefully review the terms and conditions of the financing agreement to ensure it’s a good fit for the business. By understanding the specifics of franchisor financing, franchisees can make informed decisions and secure the funds needed to launch and grow their franchise business.
Franchises often provide access to financing consultants to help streamline the funding process for their franchisees. Using cash to fund startups allows for complete control of the business without involving an investor.
Some franchisors streamline the funding process by helping new franchisees get loans and discounting fees. Many franchises help new business owners by offering incentives and building relationships with preferred lenders.
To qualify for franchise financing, business owners must meet specific eligibility requirements, such as a good credit history, a solid business plan, and sufficient collateral. Lenders typically require some personal funds upfront for franchise financing, which can be as much as 10 to 30% of the total investment. Businesses usually need to provide business financial statements when applying for franchise financing.
Additionally, credit approval is crucial, as meeting the necessary credit criteria and providing required documentation can significantly impact the success of loan applications. However, securing a loan may require a personal guarantee, which can put personal assets, such as a home, at risk if the loan is not fully secured.
The qualification requirements vary depending on the lender and the type of financing. For example, SBA loans require a minimum credit score, a detailed business plan, and sufficient collateral. Franchisor financing may require a personal guarantee or a certain amount of liquid assets.
It’s essential to review the qualification requirements carefully to ensure the business meets the necessary criteria. By preparing the necessary documentation and understanding the eligibility requirements, franchise owners can improve their chances of securing the financing they need to succeed.
We also specialize in opening new franchise locations. Some of our franchise clients have used franchise financing to cover franchise fees, pay for new equipment upfront, or prevent weekly deductions from damaging profits during slow or busy periods. Franchise financing can act as a cushion for monthly expenses and make it possible to grow existing locations on schedule after opening new ones. The franchise agreement is crucial in the financing process, as it outlines the costs and terms associated with opening a franchise, which can significantly impact initial investments and operational planning.
Understanding financing options is essential for small business owners who are starting or buying a franchise. Many franchise owners have likely avoided small business loans because they are busy enough already. When you open a new franchise, you must simultaneously take on the roles of recruiter, accountant, sales executive, and HR manager. However, franchise business loans can be accessed in just a few business days, and you don’t have to play three rounds of phone tag to have a question answered. With a merchant cash advance, payments are automatically deducted from sales and require no manual action from the business owner. It is literally impossible to “miss” a payment.
Starting a new business venture involves various financial considerations, including securing the necessary capital and understanding the specific funding mechanisms available to support such start-ups.
Many franchisors typically require potential franchisees to demonstrate a positive net worth and sufficient liquid assets as part of the franchise financing process. They may also provide specialized financing options tailored to the needs of new franchise locations, thereby optimizing the financial support available for prospective business owners.
Fraud Disclosure:
Please be aware that individuals have been fraudulently misrepresenting to business owners (and others) that United Capital Source, Inc. (“UCS”) can assist small businesses in receiving government grants and other forgivable business loans, when in fact those grants or loans do not exist or are not available. These individuals have ulterior motives and are engaging in the unauthorized use of the names, trademarks, domain names, and logos of UCS in an attempt to commit fraud upon unsuspecting small business owners.
UCS will never communicate with a prospective client on Facebook, Facebook Messenger, or any other type of social media. Further, any email communications will always come from an official UCS email address and not a Gmail, Yahoo, or other email domain. If you believe you have been contacted by someone posing as an employee of UCS, please email [email protected].
