Becoming a franchisee is an affordable way to start your own business. But affordable doesn't mean free — the average franchise startup costs range from $50,000 to $200,000.



The good news is that you don't have to front all that cash yourself. Seeking franchise financing is a smart move if you want to get your business up and making money fast. 

Bank loans, franchiser financing, crowdfunding, and grassroots fundraising are all excellent funding sources.

Which type of financing is right for you? We're helping you answer that question with this guide. Keep reading to find out how you can fund your dream of business ownership as a franchisee.

Loans

Debt funding (AKA pulling out a loan) is probably the first thing that comes to mind when you think of franchise financing. Depending on your circumstances, you have one of three loan options to consider.

Bank Loan

Commercial banks lend out startup costs to franchisees. To qualify, you must have good credit. You'll also have to present a detailed business plan to the lender to prove your idea is worth investing in.

SBA Loan

The US government offers loans for startups through the Small Business Association (SBA). The benefits of getting an SBA loan compared to a bank loan include better interest rates and repayment options. 

Alternative Loans

If you can't qualify for a bank or SBA loan, an alternative lender may be your only option. Alternative lenders have lower credit requirements. You'll pay for that in the form of shorter repayment periods and higher interest. 

Franchiser Financing

Franchisers often offer to finance their independent business owners' startup costs. The franchiser may finance these costs directly. Or the parent company might partner with a lender who manages the loan terms. 

One example of a parent company that provides financing for its franchisees is The United Postal Service (UPS). UPS Stores go one step further, providing special financing rates and reduced franchising fees for veterans. 

Crowdfunding

Crowdfunding is a newer option for raising startup costs. Yet, experts estimate that crowdsourcing startup funds generate $17.2 billion yearly in North America alone.

With crowdfunding, franchisees can raise money from strangers online. These online investors exchange funds for perks. Perks might include shares in your franchise or special discounts on your business products or services. 

Grassroots Fundraising

Grassroots financing is a fancy word for borrowing funds from your family and friends. The borrower eventually pays family and friends back when the franchise starts generating profits. 

This option is ideal for prospective franchisees who are ineligible for good loan terms. Grassroots fundraising is also a good option if you don't want to go into debt. 

Need More Franchise Financing Advice?

Entrepreneurs have options when it comes to franchise financing. You can seek loans or funding through your franchise's parent company. Or you can harness the kindness of strangers, friends, and family via crowdsourcing or grassroots fundraising.

Are you searching for more franchise development and financing advice? Get in touch with FranNet today to learn how we can help you afford your very first business.