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Where Can I Find Funds To Buy A Franchise?

There are many sources that can fund the purchase of a franchise. Here are some traditional sources of capital:

  • Franchisor Funding. Some franchisors have funding programs to help franchise candidates purchase and run their franchise. A franchisor's UFOC should list whether a franchise offers funding to buyers and the interest rates.
  • Bank Loans. Your local banks may provide small business franchise loans. This should be one of the first stops for securing a business loan. National banks are likely to have programs.
  • SBA Loans. The Small Business Administration assist potential franchise owners secure the funding they require through its 7(a) Guaranty Program. These are loans for those who have not been successful in applying at a bank for a business loan. Funds are guaranteed to specific banks by the SBA. There are 3 conditions that  must be met for an SBA guaranteed loan.
  1. The loanee must have applied unsuccessfully to a bank and all personal assets must be exhausted.
  2. Must have a reasonable amount of equity.
  3. Small business must be a for-profit enterprise in the United States or its possessions.
  • Partners. Partners can supply capital in return for a percentage of the business' profits. These type of partners are not interested in running the business but would be involved in any major business strategies and decisions.

A franchise buyer should also look at non-traditional sources of capital, which are:

  • Family & Friends.
  • Angels. Angels are wealthy private investors who are willing to provide funding for a start-up business. They do not give out loans but rather are equity investors, forming a close tie with the managing owner.
  • Venture Capitalists. Venture capitalists are almost always equity investors, not lenders. They manage investment funds and typically seek larger investments with expectations of a 20%-40% annual rate of return.
  •  Special Interest Financing. There are special interest groups that provide funding for minorities and women. Others might provide funds for inner-city small businesses.
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