New franchises look for funding from various sources, even if only as a back-up for the inevitable ups and downs of business. Fortunately, franchisers regularly have financing plans for new franchisees. These arrangements often cover the franchise fee or necessary equipment to run a franchise. But franchisers also manage their own risk, and will not provide operating capital for a new business, so you’ll have to look to fund this independently.
Usually, new franchisees will use retirement funds, personal savings, credit cards, and family to help fund an initial start-up. These days, traditional banks are wary of new business ventures, so qualifying is difficult, especially when there is no business history to show. With business plans unproven, many new franchise owners will consider on-line financing.
The positives of considering online financing are several:
- Online loans are usually faster — at both providing a response and at funding the loan. Even the application may take less than 30 minutes. Sometimes the decision to fund your needs is instant depending on your request, credit score, and income from other sources.
- You can easily compare choices online. Comparing brick and mortar banks takes hours. Online information streamlines comparison shopping.
- Lower fees. Well, maybe. Online lenders don’t have the same overheads as traditional banks, so transaction fees might be lower than traditional banking fees.
- You could avoid a UCC-1 filing. Traditional lenders will often require a UCC-1 as a security instrument to protect their funds. This locks in assets and makes future funding nearly impossible to obtain. Online lenders may not require this type of collateral.
- You might avoid a personal guarantee. Personal guarantees tie up personal property like houses and future income. Using an online financer might avoid this constraint that could risk your car or home if you have trouble making the loan payment.
- Non-traditional means options. Online business lenders are not interested in checking accounts. Rather, they offer variety in business loans. One could be exactly what your business needs.
These are cons to consider with online financing. The main one is interest rates.
Interest rates will probably be higher. Even though online lenders do not have the same levels of overhead, they are making a quick decision based on your credit score and your financial status. You wouldn’t be looking if you had the cash, so you are a greater risk. That risk and the convenience that online loans offer will usually get you some flexibility, but at a significantly higher cost.
Work with your own funds and franchiser lending options first, if possible, but if you need start-up funds for your franchise, online financing may be right for you. Traditional banks and lenders might be good for your needs, but any good loan requires some research; so shop, compare costs and reviews, and work with those who can help make your new franchise vision a reality. Perhaps online financing is exactly right for your new franchise.
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