By: Allan Thompson | Chief Operating Officer
Small business owners who are running a franchise straddle two worlds. On the one hand, you are part of a larger, well-known company that builds and protects your brand and provides your products. On the other hand, franchisees are small business owners who must manage the finances of their operation. The financial responsibilities of running the business fall upon the owner, including securing necessary financing.
Jet Capital understands that small business owners, including franchisees, may need working capital quickly. We are here with merchant cash advance funding for all the times when your business might need funds immediately. This could be replacing broken equipment, making a great hire, expanding your marketing, or even purchasing inventory to prepare for a busy season. If you are a franchisee looking for fast funding, please contact us today!
Here are a few additional resources for franchisees looking into funding.
The Small Business Administration (SBA) Loans and Franchise Registry
For franchisees who need a small business loan and can wait for the longer time period required by traditional financing, the SBA runs a program in which the government backs part of the loan. The SBA does not issue these loans, but they work with banks to provide a guarantee to banks. These loans, known as 7(a) loans, come with a partial government guarantee.
For any new business owner or recent-franchisee, the SBA may help obtain a small business loan since the bank will have the assurance of government-backing in the event of default. According to the Wall Street Journal, about 10% of these SBA guaranteed loans go to franchisees.1
Before applying for a 7(a) loan through the SBA, owners will need to double-check the Franchise Registry Approved Brands. This database is maintained by FRANdata and the SBA to monitor the size of each franchise and their owner agreements. An individually-owned franchise will need to be small enough to qualify for a small business loan.
Furthermore, the franchisee agreement will need to give owners enough control over the business to be considered independent business owners under their parent company. SBA 7(a) funding is limited if the franchisor ‘employs’ the franchisee, or as the SBA puts it, “Franchises are eligible except when a franchiser retains power to control operations to such an extent as to equate to an employment contract; the franchisee must have the right to profit from efforts commensurate with ownership.”2
Does your franchise have an in-house financing expert? Many franchisees have some kind of financing agreement with their parent company. Usually, the franchisor will take on some percentage of the debt burden. These agreements can have a variety of timeframes and interest rates. Franchise companies may also agree to finance equipment and/or some portion of operating costs. Some companies have equipment leasing agreements, too, which may help control costs at start up. Since equipment costs can be as much as 75% of start-up expenses, leasing may be a smart way to get started.3
Explore the options your franchisor offers keeping in mind the timeframe and rates of financing. Also ask for any special discounts or funding for women-owned or minority-owned businesses. Many franchise companies offer incentives to attract these underrepresented groups as owners in their businesses.
International Franchising Association
The International Franchising Association is the franchise industry source for news and resources. You can connect with mentors, research your financing and funding options, and learn more about the issues franchise-owners face.
The International Franchising Association also runs the VetFran program to assist veterans interested in owning and operating their own franchise. This initiative encourages financial incentives to veterans and might include reduced start-up fees and special financing.
Merchant Advance Funding from Jet Capital
Sometimes business owners simply can’t wait for a traditional small business loan when they need funding. Franchisees who need to keep their business running during an emergency or to capitalize on a timely opportunity should consider a merchant cash advance from Jet Capital.
We understand that successfully financing your business means balancing costs with anticipated revenues. We know that even though you are part of a larger franchise company, funding and growing your business is ultimately your responsibility. Our business funding solutions are designed to be fast and flexible tools to help manage your cash flow. Our funding decisions are made within a day, and we can get working capital to your business as soon as the next business day.
Get started with our fast, online application today, or give us a call at 866-845-9674!
1. How to Finance a Franchise Purchase. The Wall Street Journal. http://guides.wsj.com/small-business/franchising/how-to-finance-a-franchise-purchase/
2. Office of Capital Access - Resources. U.S. Small Business Administration. https://www.sba.gov/offices/headquarters/oca/resources/13024
3. Finance Your Franchise. https://www.entrepreneur.com/article/36480
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