The Importance Of Taking Franchise Loans

Many entrepreneurs balk at the overwhelming statistics facing new small businesses: 33% will fail within their first two years, and 56% will not likely make it past four. Many go under the common notion of thirds – that one third of small businesses will make money, one third will break even, and the last third will never break outside of a negative earnings scenario. Still wanting to run their very own business but fearing these odds, many will likely then consider opening a franchise, which usually still calls for franchise loans.

Franchising is, essentially, a similar alternative to opening a series of chain stores. Whereas an individual company looking to expand will open a chain of stores using their own funding, employees, marketing, etc, a franchisor expands their brand by giving these duties to a prospective franchisee in return for permitting them full use of their trademarked name, marketing as well as other business aspects unique to that brand. Should a franchise fail, this frees the franchisor from personal loss given the absence of a direct share in its success.

Nevertheless, it is a lucrative proposition for an small business owner because the already established success, and people’s preexisting understanding of the brand and marketing help guarantee a certain customer base, making for a a lot more sure bet than starting a completely new independent business. In short, a franchise is a brand name establishment that is independently owned and operated by a third party under permission and guidance from that franchise’s parent corporation.

However, considering that the entrepreneur is basically looking to purchase permission to use a brand name, along with an established business model from a large franchisor, they still must place personal financial stake in the operation which are generally acquired via franchise loans.

Franchise loans are similar to virtually any other type of business loans in that they’re granted by a bank for use in establishing a company with the business owner’s intention of paying back the borrowed funds. The size of various franchise loans will of course vary with respect to the brand of the franchise a business owner is seeking to open, some of which are significantly cheaper than others.

Subway restaurants, for example, are possibly the most popular franchise in the United States, with a startup cost ranging between $84,300 and $258,300. However, a 7-11 can be opened for as low as $40,500, while a Hamton Inn could cost up to $13,148,800 to open. Naturally all of these startup costs depend on a myriad of factors ranging from geographical location, to size and scale of the establishment, to the economic climate of the area in which their opened. No matter what, even cheaper franchises cost a significant amount, making franchise loans more than necessary for the common entrepreneur.

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