Franchise finance between $20,000 and $50,000
Discover how to get approved for franchise finance between $20,000 and $50,000.
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You've got big plans but a small budget. Find out how you can get approved for franchise finance between $20,000 and $50,000 to make your business dream a reality.
When you think of franchise businesses, you may conjure up images of multi-million-dollar fast food giants and open-all-hours convenience stores in prime locations. In other words, many people associate franchise businesses with enormous financial investments. Luckily, that doesn't have to be the case. There are plenty of successful, big-name franchise businesses that you can start for between $20,000 and $50,000, and many people have successfully turned a low-cost franchise into a profitable, self-sustaining business enterprise.
The key to finding a franchise business that you can run on a low budget is in thinking outside the box. For example, you could run the business from home or bring your services directly to your customers.
Compare the following Franchise Finance options between $20,000 and $50,000
Franchises for sale between $20,000 and $50,000
Generally speaking, there are two types of franchises that you can start for less than $50,000. Some franchise opportunities are inexpensive simply because they have low overhead and do not require retail premises or commercial office space. If you are interested in this type of franchise, you could look at one of the following:
- Cafe2U is a mobile coffee franchise that runs from a mobile coffee van and delivers hot beverages and snacks to existing workplaces.
- Circle of Love provides wedding planning services that you can run from your home.
- Fastway Couriers is a well-established courier company that does not require commercial premises.
The other type of franchise that you can buy with a small budget is a franchise business that has been established by somebody else and which is available for purchase as an existing business. In some instances, a big name, big budget franchise may be available to purchase for a low budget because the business is not doing well or has been poorly run. This may be because the owner wants a quick sale or because the business is not in a suitable location to ensure business success.
At times, even big budget franchise businesses like Baker's Delight and Muffin Break have been listed for sale for between $20,000 and $50,000.
In order to make this type of franchise business work, you would need a significant amount of business experience and must be able to prove to the lender that you have a solid business plan in place to turn an otherwise unsuccessful business into a profitable venture.
Choosing a franchise between $20,000 and $50,000
Questions to ask when choosing a franchise
When comparing franchise options with a budget between $20,000 and $50,000, ask yourself the following questions:
- Am I looking to purchase an existing business previously started by somebody else or am I looking at starting a new franchise?
- If purchasing an existing franchise, why is the sale price so low? What would I need to do to turn the business around to become profitable?
- If opening a new franchise business, what would be the costs, advantages and disadvantages of starting a similar business but without buying into an existing franchise?
- What ongoing costs, fees and royalties are payable to the franchisor?
- What level of training and support does the franchisor provide?
- Does the franchise business fit in with my budget, lifestyle and other commitments?
- What level of support are you expecting?
One of the main reasons that some people choose to enter into a franchise business arrangement is the ongoing support they anticipate receiving from the franchisor as well as the networking and support opportunities from existing franchisees in other areas.
Keep in mind that not all franchisors offer similar amounts of support to their franchisees. Some franchisors are highly involved with their franchisees in an ongoing way, providing support, training, networking opportunities and access to new products, ideas and technologies on a regular basis. Other franchisors do not take such an active role in individual franchise businesses once they have become established.
Understanding the costs of a franchise
Franchise costs and fees
Franchise businesses come in all shapes and sizes, but there is one aspect of franchising that is standard across the board. For every franchise business, an initial cost is payable to the franchisor in order to establish the business. And while there are some franchises that cost upwards of $1 million upfront, there are a multitude of franchises available for between $20,000 and $50,000.
After the initial set-up costs are paid, franchisees must continue to pay ongoing fees to the franchisor for the life of the franchise agreement. These fees can be calculated as a percentage of turnover, typically ranging from 2-15%, which is most common in more expensive franchise agreements. Alternatively, royalties can be a fixed amount regardless of turnover, an arrangement more common in low-entry-fee franchise arrangements. The ongoing fees or royalties allow you as the franchisee to continue using the name, branding and other features of the franchise system.
In addition, some franchises require other compulsory ongoing payments to cover marketing and advertising, access to technology or training.
It is vitally important to understand the royalty fee structure of your chosen franchise and to ensure that your budget can allow for it on an ongoing basis.
Budgeting for Working Capital
Working capital is the amount needed to fund the ongoing financial obligations of a business from day to day. It is completely separate from royalties and other fees, and covers current expenses such as amounts owing to suppliers, employees, rent and utilities.
A business's working capital is directly linked to its cash flow. For example, a business that sells fresh food directly to the public will have relatively low working capital requirements, since its stock levels will move on an ongoing basis. Since customers pay for their purchases at the point of sale, such a business would have relatively few, if any, outstanding invoices from customers.
A business in the building and construction industry, on the other hand, would typically need considerably higher levels of working capital, since it requires significantly greater levels of stock and equipment, and could be dealing with building projects lasting months or even years. While clients may only be requested to pay progress payments at the completion of each stage or on a monthly basis, staff and contractors would expect to be paid much more frequently.
With the amount of working capital required for each business varying to such a degree, it is important to have a good understanding of how much working capital your business could potentially require. Also keep in mind that, when applying for a business loan for a franchise, lenders typically will not allow for working capital in the amount of the loan. Franchisees are expected to fund their working capital themselves, even from the outset of the business.
Finance options for franchises between $20,000 and $50,000
What types of franchise finance is available?
For franchise finance between $20,000 and $50,000, a number of viable options are available.
- A secured business loan will typically provide funding for up to 70% of the finance you need. This amount may be higher for franchise businesses that lenders perceive to be low risk. You will need to offer an asset as security for the loan, either residential property or in some cases the business itself. The loan term will generally be tied to the length of the franchise agreement, or it can be longer if secured by residential property.
- An unsecured business loan does not require an asset as security, and therefore will involve a lower amount than a secured loan, typically around 50% of the amount required. In addition, unsecured business loans tend to have higher interest rates than their secured counterparts, but can be a viable option for lenders who do not have a suitable asset to put up as security.
Frequently asked questions
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