Many entrepreneurs nowadays opt for franchise business to set up businesses can leverage a big business network and existing customer base. But the entrepreneurs have to invest funds to buy the franchise, purchase products, and set up the franchise business. Likewise, the franchise business owners have to arrange funds to meet operational expenses and maintain positive cash flow. But often owners find it difficult to avail credit to start and expand their franchise business.
Many franchisers make it easier for franchisees to set up businesses by providing debt financing. But the franchisees still need credit to fund working capital needs. In India, generally traditional banks do not offer franchise business loans. But the franchisees can always meet their working capital needs through the small business loans for franchise offered by various lending institutions. They can even consider a number of small business loans for franchise.
5 Small Business Loans to Start and Expand Franchise Businesses in India
1) Term Loans
In India, both banks and NBFCs provide term loans to small business owners. The franchisee can always consider funding his working capital needs through the term loans. The term loans will require him to make predictable monthly payments and pay interest at fixed rate. But the entrepreneur must have a good personal credit score to avail term loans. Also, he has to deal with elaborate paperwork and lengthy processing period to avail credit. Some lending institutions may even require the franchisee to use his personal assets as collateral to avail term loans. However, the franchise business owners can always consider the unsecured small business loans provided by NBFCs to avoid strict credit requirements and lengthy paperwork.
2) Bootstrap Financing
The bootstrap financing options enable entrepreneurs to buy and run franchise businesses without borrowing money or sharing ownership. The internal source of franchise financing further helps owners to maintain a positive cash flow position without paying interest. The franchisee even has option to choose from multiple bootstrap financing options. For instance, they can fund working capital needs by availing soft loans from friends, relatives, or family. Likewise, they can avail credit through the trade credit provided by the franchisor. At the same time, the franchise business owner also has option to avail credit quickly by discounting his unpaid invoices or goods received notes. Here is an interesting comparison between small business loans and bootstrapping.
3) Venture Capitalist
The venture capitalists provide capital to start-up owners to set up and grow their businesses. But they always provide capital to entrepreneurs if their businesses have high growth potential. Many venture capitalists even invest in start-ups that have been growing consistently. The entrepreneur can avail venture capital only in exchange of a stake in the business. But the venture capitalists will help the entrepreneurs to grow and expand their businesses by providing resources, expertise, and connections. An entrepreneur can always fund his franchise business through venture capital by convincing the venture capitalists about the business’s high growth potential.
4) Angel Investor
Many successful business individuals nowadays provide capital to start-up owners. But the start-up owner has to avail capital from an angel investor in exchange of ownership equity or convertible debt. Also, he needs to pick the right angel investor and impress him with the business plan to avail credit. Like start-up owners, the franchise business owners can also avail capital from angel investors to set up and grow their enterprise. They even have option to avail franchise business financing from many angel investors. The angel investors help franchise business owners to access credit quickly. But many angel investors do not provide credit to first time entrepreneurs. The franchisee must convince the angel investors to fund his franchise business.
5) Partnership Franchise
The franchisee can fund his franchise business by forming business partnership. He can seek business partners who are ready to invest in the franchise business. But he has to share a part of profits with the business partners in lieu of their investment. The franchise financing option helps entrepreneurs to avail credit without paying interest or impact the cash flow position. But the entrepreneur needs to ensure that the investor must work as a sleeping/silent partner and does not participate in day-to-day operations. Also, he needs to focus extensively on the terms of the partnership deed.
On the whole, a franchise business owner can avail small business loans provided by various lending institutions to meet his working capital needs. He even has option to choose from a wide range of small business loan products. But the small loan products differ from each other in the categories of business loan eligibility criteria, repayment period, collateral requirement, and rate of interest. Hence, the franchise business owners must compare these small business loans elaborately.