A low cost franchise may be priced so low that a lending institution won't consider a business loan for it. In some cases, financing isn't necessary with a low cost franchise because the franchisee has enough in savings to cover it. But in other cases, some level of financing is needed. There are many places to find that financing, from the conventional to the less-than-conventional.
One way to get financing for a low cost franchise is to get a home equity loan or line of credit. This can be done in smaller amounts than most business loans, and it provides one important benefit to homeowners. The interest on a home equity loan is tax deductible. This gives you more money at the end of the year that can be put back into your business if you choose. This does present some risk, so many homeowners choose not to use their home as collateral. However, if the amount you need is small, too small for a business loan, a home equity loan may simply provide you with a quick way to get the money together without presenting much risk to your equity.
Credit cards can often be used to finance a low cost franchise by supplying the borrower with either the full amount of the franchise costs or by supplementing the money you already have in order to make up whatever is lacking. Most credit cards can be used to obtain a cash advance on the credit line, and this can be used to supplement the money you are using to finance your franchise.
Some franchises offer their own financing programs, even if the franchise itself is a low-cost opportunity. This is increasingly becoming an option as the recession has made it more difficult to get bank loans for financing. A franchise opportunity that offers financing to new owners will be more attractive to potential franchise owners, giving companies a vested interest in creating these programs.
Some new business owners finance their businesses by cashing out their 401(k) or an IRA. Depending on your age, you may have to pay penalties to use this money, but access to it is often easier than going through a bank for financing. Other ways to raise money for franchise expenses include selling something to pay for the fees, such as trading in an expensive car for a less expensive one, selling a timeshare or otherwise raising funds from your existing assets.
If you don't want to access any of these financing methods and your chosen franchise company doesn't offer any financing, there is also the option of taking on a partner or seeking out venture capital companies. Choosing to take on a partner may mean that your profits are cut in half, but it can also mean less risk and quick financing for your low cost franchise. Venture capitalists have the same advantages and disadvantages, though they generally ask little in the way of actual participation in the business. From all of these methods, virtually any potential franchise owner can find the best method of financing that dream.
