Things You Need to Know When Financing a Franchise Purchase

A franchise business is a good entrepreneurial opportunity. It offers you the independence of owning a business coupled with the support and goodwill of a reputed brand. However, before you consider signing on the dotted line, you might want to arrange your finances. Let’s look at some aspects that you should consider before arranging finances for the franchise purchase.

Understand the business feasibility

Before you consider any financing option, it is necessary that you understand the benefits and the risk associated with the franchise and its business. Benefit: A franchise business could give you immediate recognition with quicker revenue streak. However, occasionally, your business may take longer than you expected to breakeven because of multiple reasons, like market competition or no recognition of the brand where you setup your shop. In such cases, you might have to arrange additional working capital before you start earning considerable profits. Thus, it is recommended that before you invest in the franchise purchase, thoroughly analyze the local market and public preferences.

Revisit your expenses

Before investing in the franchise business, revisit the charges that you could’ve overlooked in the beginning. There could be several types of costs you might have to incur that you might not have considered. For example, the cost of hiring a management team and their training, brand publicity, office stationery, IT products, royalty fees, public relation and so on. Whether you invest your own savings or avail a franchise finance, it is recommended that you understand the complete expenditure requirement. Once you understand the requirement, you can easily narrow down the quantum of the loan you need to avail.  

Explore different finance options

To finance your franchise business, you could consider either of the following two options: You can either invest your savings or can avail a loan from friends and relatives or from a lender. You might also have a tailored finance from your franchisor.

Availing a business loan could be a viable option to finance your franchise. Banks and Non-Banking Financial Companies like Bajaj Finserv, offer a special type of business loan called franchise loans that can help you meet your franchise business needs. You can also look for Bajaj Finserv pre-approved offers for personal loans, home loan, business loans, and a host of other financial products that could help your business get a head start. Pre-approved offers simplify the process of availing your loan and helps you save time. All you have to do is share a few basic details and check out your pre-approved offer.

Alternately, if you are confused about the amount of loan you may require to finance your franchise business, you can opt for a flexi loan. With the flexi loan facility, you can withdraw as much as you want any time and pay the interest only on the utilised funds.

Are you eligible for a loan?

Lenders asses your repayment capability while approving a loan application by checking your credit scores. They could also look for your alternate source of revenue to ensure that you can repay the loan amount. Therefore, it is necessary that you fulfil the eligibility criteria determined by the lender to avail the loan. Lenders lay down different eligibility criteria according to their policies. However, there are a few common eligibility norms to avail a franchise loan.

  • You must be 25–60 years
  • You should have a vintage business. Ideally, lenders look for a vintage business of 3–5 years.  
  • The lender may also look for your tax related compliances like income tax returns of past 1–3 years

What is the loan amount you can avail?

A franchise enterprise may have to bear the initial expenses of franchise infrastructure setup, machinery and equipment purchases and day-to-day expenses like working capital and inventory needs. For this, you might need a high-value loan. A franchise loan can vary between Rs. 30 lakh to 50 lakh. Once you fulfil the easy eligibility criteria and submit the needed documents, these loans are approved quickly. You could get the loan amount in your account within a few hours after approval.

Conclusion

Purchasing a franchise chain of a thriving restaurant brand or a retail shop is a lucrative business opportunity. You can get instant brand recognition and steady revenue owing to the company’s goodwill and reputation. However, one of the essential success factors is arranging adequate finances before purchasing the franchise. Instead of risking your hard-earned savings, availing a franchise loan could prove to be a beneficial finance option.

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