Financing a franchise

Being an entrepreneur can be a very lucrative move to make. When choosing to start a business, there are many avenues to take, any of which could lead to success. Recently, this blog discussed the corporate structure. This is one option available to those seeking to start a business, but it is not by any means the only one. While many Louisianans choose to start their own business from the ground up, others find that process intimidating. As a result, these individuals often choose to franchise existing businesses. However, before engaging in franchising, an individual must have a solid understanding of the franchise agreement and financing.Franchise financing used to be much easier than it is today. Although franchises have lower default rates on their business loans than other small business owners, bankers are still requiring more equity investment prior to issuing loans for franchise licensing purposes. This means that they often want to see detailed business plans, significant operator participation and significant amounts of equity investment by the franchisee.Financing a franchise is no small thing. The cost can be much larger than many anticipate. The initial franchising fee itself can be tens to even hundreds of thousands of dollars depending on the circumstances at hand. This is especially true if, in addition to the actual franchise, the franchisee enters into a territorial agreement. Other costs can quickly rack up, too. These include building, inventory and personnel costs. While some of these expenses should be financed through equity, a significant portion of it, if not a vast portion of it, Will likely come through financing.Franchising can be a great option for those who are looking to start a business. However, there are many contractual agreements that must be negotiated and entered into in order to an individual to secure the rights to a franchise, obtain adequate financing and protect a franchisee’s best interest. For assistance in negotiating and even creating these contracts, an individual may want to speak with an experienced business law attorney.