There’s an old saying in business: “You have to spend money to make money.” And in most cases, yes, that’s true. Especially in franchise models. There may be licensing fees for the brand and logo use, royalties—some may include marketing fees that go toward very helpful and targeted marketing in the franchisee’s area. Simply put, you need money to buy a franchise
But franchises aren’t one-size-fits-all. In fact, there are a lot of franchise models that exist which work for people who don’t have a ton of investment money laying around to put toward becoming a franchisee. Beyond that, there are several options to secure the funding necessary to buy a franchise.
Let’s look at some options for the more cash-strapped would-be franchisees among us, and see what kind of options exist to secure funding.
Low-Cost Franchise Options
Not every franchise is a fast-food restaurant. Those may be one of the more well-known examples, sure, but they’re also the type that tend to require a significant investment up-front. Different types of franchises operate in different ways, with some requiring more labor on the part of the franchisee, while others simply require the investment for an all-in-one package. Low-cost franchise options do exist, and while you’ll still need money to buy a franchise, you may not need as much as you think.
Job Franchise
Job franchises are what they sound like: they’re an option that requires the franchisee to put in a day’s work to make their money. They’re also one of the cheapest options to start, requiring usually a small amount for licensing and other materials. Job franchises are best for people who don’t have a ton of investment capital but also want to be their own boss and don’t necessarily want to grow into a large business. With a job franchise, you’re ultimately buying into a brand, through which you can make your own money under an established name. Think cell phone repair shops, plumbing or electric companies, or event planning services.
Product Franchise
Product franchises aren’t always going to be low-cost options, but some do exist and they’re worth investigating, especially if you’re sales savvy. Like job franchises, product franchises give you autonomy to run the business the way you see fit while selling a product or service from a franchisor. To be fair, these are often large retail operations—car dealerships, tire retailers—but there are smaller options too, like vending machines.
How to Finance a Franchise
If you’re still scratching your head and thinking, “Ok, but how do I get funding to start a franchise—even an affordable one?” fear not. There are several ways to get the money to buy a franchise.
When considering these options, it’s always a good idea to speak with a financial professional to make sure you’re making a sound decision. Franchises are excellent investment opportunities, but it’s important to make sure you’re starting on solid fiscal ground before committing to a loan.
When considering these options, it’s always a good idea to speak with a financial professional to make sure you’re making a sound decision. Franchises are excellent investment opportunities, but it’s important to make sure you’re starting on solid fiscal ground before committing to a loan.
Franchisor Financing
If your heart is set on a particular brand or type of franchise, you don’t necessarily need to fret about how to buy a franchise with no money. Many franchisors offer some type of financing help because it’s a benefit to them as well—the franchisee gets capital, while the franchisor adds another location to its portfolio and expands the brand. A franchisor may offer low-interest loans or even just assistance in finding funding from trusted sources.
SBA Loans
Franchises are the perfect fit for the Small Business Administration. Ideally, a loan for a franchise will offer long repayment terms and low interest rates. Not everyone qualifies for a conventional loan, though. This is where the SBA comes in. While they don’t distribute the loans themselves, they do provide a guarantee on loans from banks and credit unions. Because the SBA backs the loan, it’s more likely that the franchisee gets approved. There are several SBA loan options, most of which offer flexible repayment plans that are well-suited to a would-be small business owner.
Partnerships
You may not have the startup money to buy a franchise, but others very well may. In these situations, taking on a partner (or two) is a perfectly viable option. It allows you to pool resources in order to buy a franchise, and divide work in a way that seems fitting. Having a partner in the business has other advantages too, like splitting responsibilities. Of course, not everyone is built for partnership, but there are investors out there who don’t mind being a silent partner—as long as they trust the person running the franchise.
Home Equity Loans
If you own a home, you can take out what’s called a home equity loan. It works like this. If your home is valued at $200,000, and you have $50,000 left to pay on your mortgage, then you have equity of the difference: $150,000. You can take a home line of credit, which gives you access to cash (though most banks won’t allow you to take the entire amount), and that loan is backed by the equity of your home.
It’s worth mentioning that home equity loans put your property at risk, so speaking with a financial advisor before making this move is advised.
There are plenty of options to buy a franchise with no money, and other tools out there to find the option that’s perfect for you. When you’re ready to explore your options—from low-cost franchise options to others once you’ve secured funding—visit Franchise.com. We have tools to help your franchise grow and help you thrive.
