Anyone who wishes to try the entrepreneurial venture will have to take risks. Franchises lower that risk in terms of a ready-made successful business plan. Typically the franchisor creates a brand’s trademark and a business system. A franchisee then pays a royalty fee and an initial cost for the right to do business under the same brand name and system. But this requires a big investment. Nevertheless, let’s find out the possibility of owning a franchise with no money.
Franchise Cost Breakdown
The major costs are Franchise Initial Fee that can vary with $10,000 to $100,000. Next is the royalty fee that is a percentage 5%-50% of the revenue. And marketing fee every year that are between 1%-4% of the revenue. Addition costs include insurance, inventory, equipment, hiring, and business licenses.
Franchise Financing Options
Franchisor Financing
Some franchisors provide funding options for their business partners with excellent credit to get started. This usually includes some sort of investment from the franchisee as well to prove their commitment.
Traditional Bank Loan
Banks, credit unions and some traditional lenders offer loans on specific terms and requirements for small businesses. However more popular franchise brands are preferred by them due to their known success rates.
Small Business Administration (SBA) Loans
For those with low credit score, SBA is a valuable option as a collaborative effort. Since they guarantee loans from the banks or credit unions. The loan can be used for a variety of purposes, from real estate to franchise fees. The interest rates for these loans will depend on the amount and length of the loan.
Home Equity Loans
This is similar to providing your home as the collateral. Partial loan is calculated based on your property owned. However you are putting your property at risk if you end up defaulting on your loan. Additionally, home equity loans require a high credit score and good debt-to-income ratio for approval.
Rollovers for Business Startups (ROBS)
ROBS allows you to use your own retirement money to start your business, skipping the process of going to a lender entirely. ROBS provider will help you access the money and charge you a small, one-time fee.
Partnership
Anyone you trust can loan you the money you need as your partner to the venture. A clear partnership agreement outlining the responsibilities, rights and profit share is crucial for this to work.
If you have wanted to start your business in franchise, then start with research on the best franchise for you. Next reach out to the brand to see if they have any opportunities in your area and how much it will cost. Then list the various financing options and choose what best suits your pocket. Because owning a franchise with no money is not impossible.
Source: Franchise Direct
Similar Read: Basic accounting know-how for a franchisee
Read: Tips to Consider in Buying a Franchise for additional information
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