Great Ways To Cut The Cost Of Starting Your Franchise Business

Great Ways To Cut The Cost Of Starting Your Franchise Business

One of​ the​ reasons a​ franchise business has such a​ high potential for success is​ because of​ all that’s included in​ the​ initial cost. in​ some cases,​ the​ start-up cost is​ the​ same (or very close) to​ building a​ business from scratch but without all the​ benefits such as​ established name recognition,​ target market research and existing publicity campaigns. With so many advantages,​ it​ can be difficult to​ understand why entrepreneurs choose to​ launch a​ business alone. Nevertheless,​ some of​ the​ high costs associated with franchises can become a​ deterrent for prospective buyers. What many of​ them don’t realize is​ that there are several options that help cut the​ cost.

Options for Financing Your Franchise

Many franchise opportunities come with a​ sizable price tag. Few prospective business owners can afford to​ make such an​ investment without some financial assistance. Unfortunately,​ not all of​ them will have access to​ the​ necessary capital it​ will take to​ satisfy start-up costs,​ franchise fees,​ royalty fees and a​ loss in​ revenue that will continue until the​ return on​ investment finally begins. if​ you have a​ well-established credit history (free of​ bankruptcies and established to​ the​ point where you’re considered as​ having enough credit),​ you may be able to​ get a​ conventional loan through a​ bank or​ credit union.

However,​ banks are typically reluctant when lending to​ small businesses. in​ reality,​ they rarely do so. Though not everyone will qualify for conventional loans,​ there are still options. if​ you have applied for credit to​ no avail,​ you can contact the​ Small Business Administration,​ an​ agency run by the​ federal government. the​ SBA guarantees a​ certain percentage of​ its loans,​ which puts lenders at​ ease because they are less likely to​ experience a​ loss. Plus,​ the​ SBA is​ usually willing to​ lend for longer periods of​ time and at​ larger amounts.

Of course,​ the​ SBA has specific criteria to​ determine eligibility. First,​ it​ must be a​ small business,​ which translates to​ less than $13.5 million in​ retail or​ service sales. Additionally,​ it​ must be located in​ the​ United States or​ a​ U.S. governed territory and only those interested in​ opening a​ for-profit business can apply. as​ you can imagine,​ this agency reviews countless applications,​ which means that you must handle yourself in​ a​ very professional manner. it​ is​ always a​ good idea to​ have your business plan ready before meeting with anyone regarding financial assistance,​ even a​ government agency.

However,​ the​ main disadvantage to​ getting an​ SBA loan is​ that the​ interest rate is​ set by the​ Treasury Department,​ which means that it​ is​ variable. Moreover,​ this interest rate is​ generally higher than those offered by conventional loans. Thus,​ if​ you can find a​ close friend or​ family member who is​ able and willing to​ lend you the​ necessary funds or​ even cosign,​ this is​ your best option next to​ financing on​ your own through a​ bank.

Economic Development Corporations

The federal government is​ not the​ only entity that provides monetary assistance to​ potential franchise owners. More and more state and county governments are pitching in​ with tax exemptions and other special programs. the​ New York City EDC,​ for instance,​ issues low-cost tax exempt bonds as​ well as​ double and triple tax exempt revenue bonds (these are technically issued by the​ New York City Industrial Development Agency,​ NYCIDA,​ an​ entity of​ the​ NYCEDC). Furthermore,​ this agency can even administer public loans. the​ only issue to​ consider before accepting assistance from an​ EDC is​ the​ fact that much of​ the​ available funding is​ dedicated to​ improving low-income or​ developing areas. Nonetheless,​ EDCs have funds available to​ prospective business owners like you. And,​ you have the​ opportunity to​ impact a​ struggling community. Still,​ before you decide to​ locate your franchise in​ such a​ community,​ make sure it​ is​ conducive to​ operating a​ profitable company.

Community Development Corporations

These non-profit organizations are dedicated to​ improving their local economies by lending money to​ small businesses. the​ goal here is​ to​ increase revenue and bring new jobs to​ the​ area. What’s more,​ CDCs are well known for developing affordable housing and improving education for residents in​ low-income areas. Once again,​ you must weigh the​ costs and benefits to​ starting a​ business in​ developing or​ otherwise lower income sections of​ a​ town or​ city.

Business Development Corporations and Venture Capitalists
If you’re weary of​ relying on​ public funding,​ you have the​ option of​ appealing to​ a​ business development corporation or​ venture capitalist in​ your territory. Returning once again to​ New York,​ its business development corporation is​ made up of​ financial institutions that pool their resources in​ order to​ lessen the​ risk. Rather than focusing on​ low-income sections of​ the​ state,​ this organization is​ devoted to​ helping all kinds of​ different businesses gain access to​ financing. the​ primary concern is​ to​ expand New York State in​ general.

Venture capitalists,​ on​ the​ other hand,​ are different from development corporations because they assume some ownership of​ your business. Because of​ this unique feature,​ they are willing to​ take more risks than traditional lending institutions. Depending on​ your specific industry and the​ stage of​ your business’s development,​ you may be able to​ find a​ venture capitalist fund to​ help finance your business.

Take Your Time

While there are opportunities for financing your franchise business and dramatically reducing your initial cost,​ keep in​ mind that some franchisees use their own resources for as​ much as​ 50 percent of​ their start-up expense. if​ you can not afford that kind of​ investment,​ consider working for a​ couple of​ years and saving some of​ the​ money for yourself. if​ you’re able to​ generate some revenue this way,​ you are more likely to​ qualify for a​ conventional loan. Otherwise,​ you will appear more serious to​ business development corporations and reputable venture capitalists. Thus,​ if​ you decide to​ wait after all,​ don’t become discouraged. Instead,​ use the​ extra time to​ conduct additional research and perfect your business plan. Sooner than you realize,​ investors will be eager to​ take part in​ your project.

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