Financing Your Franchise In Today’s Market

Published on December 26, 2013

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Franchise businesses are a great way for would-be entrepreneurs to easily and quickly enter the business world in today’s market.

First, franchises usually provide a proven business model meaning that many franchisees do not have to struggle during a start up period in ensuring the feasibility of their products, their markets and their processes.

Second, brand.  Many established franchisors have already spent the time and effort in educating the consuming public or their potential target market to the benefits of the products and services the franchise offers.

And, lastly, economies of scale.  One issue that almost every new business owner faces is the ability or power to negotiate price reductions with suppliers or vendors.  But, with the buying power of an entire franchise system (compared to one single business) franchisees are able to realize huge purchasing discounts from the very day they open their doors.

Over the last few years, many franchise concepts have struggled in this economy just as other traditional, stand alone businesses have.  However, not all franchises are made the same and not all have suffered the same. In fact, according to an October 2009 press release from FRANdata, the world’s largest repository of franchise information and data, “The home health care industry is rapidly growing . What’s more, demand for in-home care service is only expected to grow over the next decade as baby boomers continue to age and require assisted living services.”

The bottom line is that while many franchise concepts did feel the same economic pain that nearly all businesses did over the last two years, overall it seems that many franchises found it easier to weather the storm.  In fact, according to Jason Daley (an Entrepreneur Magazine Contributor) 2010 is expected to see a modest recovery in franchise businesses such as fast food, tax prep and home repair not to mention the staples in the industry like pet care and products related to children.

But, while purchasing a franchise may be the best path for many would-be entrepreneurs, actually finding the financing for that purchase still remains a very high hurdle to overcome.

Many well known franchisors relied on preferred lender programs with national or international financial institutions.  Here, the franchisor would essentially pre-sale its business model to banks and other national lenders.  Thus, when a strong prospect for a new franchise appeared, the franchisor would simply send that person to their preferred lender or lenders.

However, many of these same preferred lender partners were the ones that got hit hardest during the recession primarily based on their huge home mortgage portfolios and as a result either pulled back or stopped these preferred relationship.

 

Author
Joseph Lizio, Business Money Today
Business Money Today is your place to find the capital your business needs whether it is a start up business or growing company. It is our mission in life to get you the business loan you need regardless of who else has turned you down.


Written by FranchiseGrade.com Team
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