Starting a business requires you to be prepared for all circumstances. Many people do not think they can start a business because of the capital involved in starting up a business. It is true that starting a business can be costly, especially if you need help from a bank or lender. The lender is going to want to see a business plan, financial projections, research, and credit history. They will assess the risk and determine if your business concept is worthy of the loan. For those who wish to start a business from scratch the risk may be more than the bank is willing to take on. It can mean your dreams have to wait until you can afford a down payment on a loan or fund the entire business start up.

In a franchise opportunity financing can work a little differently. We will examine why this is and the “Catch 22” that could result. A franchise offers you a solid business plan that has been proven to work. This business plan is what you take to your investors such as a bank. You will have to do research on the franchise and provide supporting evidence of why you can make it work. For example, you would need to do market research in the area you will have the business. This area can be drastically different from where the other franchises are located. If you have a different clientele the franchise might not be as successful. Area plays a huge role in the success of a franchise opportunity.

If you have supporting evidence in your favour where the risk is shown to be low, a bank will be willing to fund your business opportunity. However, your research may show the franchise to be too risky for the investors. This is the “Catch 22” we were discussing. While you have a solid business plan, you still have to prove the idea will work and that you have the expertise to make it work. If the risk is too great the investors may require a large deposit from you.

Many banks offer between 50 and 70 percent financing on franchise deals. This means you would have to have between 30 and 50 percent of the franchise costs in your bank account. Financing franchises is easier if the bank is willing to lend the money. It means instead of 100 percent of the start up costs in your bank account you need up to half and the bank will offer the rest.

You also need to consider what the franchisor will require. They may ask for an upfront fee, plus monthly percentages of the revenue. It can be expensive to run a franchise depending on the requirements of the franchisor. If you are paying out 50 percent of your profits with a bank loan to pay off you may not have enough revenue to support the business. Part of financing your franchise is understanding the payments involved for the deal and the loan you need to begin the business.