Pros and Cons of Using a Loan to Finance Your Franchise Purchase

Pros and Cons of Using a Loan to Finance Your Franchise Purchase

For many, purchasing a franchise is a great way to start a business with the backing of an established brand. A franchise offers the independence of owning a business, without the risk of starting from scratch with an unproven brand or concept. Like any business, however, a franchise requires start-up capital. For some, this capital comes from personal assets, those from a business partner, or support from friends and family. Many others, however, opt to seek small business loans to cover the purchase and get their business off the ground.

For those considering this option, here are a few pros and cons of utilizing a bank loan to finance a franchise purchase:

Pros

Convenience: By nature, banks are always accessible as they are regularly used for personal checking and savings transactions. After being a bank customer for some time, the establishment becomes familiar and the personalized service the bank offers makes it a logical starting point to finance a franchise purchase.

Multiple Options: Banks offer a variety of options to help a business get off the ground including term loans and standard business loans. This article from Entrepreneur offers some insight into other common loan products offered by many traditional banks.

Lower Interest Rates: Traditional bank loans may be harder for some to acquire, but it can be worth it. Often, the interest rates associated with bank loans can be significantly lower than those offered by non-traditional lending agencies and/or credit cards.

Tax Benefits: A benefit that is sometimes overlooked, many loans allow profits that are being used to repay the loan to be tax-exempt, saving the business owner money in the long run.

Cons

The Application Process: Banks need a substantial amount of personal and financial information in order to make the decision to grant the loan. This means that the application process can often be long and time consuming.

Preference Given to Operating Businesses: It’s a chicken vs. egg scenario: Banks prefer to grant loans to businesses that have been open for some time since they can more easily gauge their profitability, but many businesses need the money for start-up, before they have generated any income. This makes it challenging for some businesses to finalize the loan and get off the ground.

Loan Qualification: Depending on the institution and the loan itself, banks may have a long list of prerequisites that must be satisfied in order to grant the loan. Occasionally, they are more than an aspiring business owner can overcome.

Loss of Collateral: Bank loans are generally backed by some sort of collateral, such as personal real estate. If the business does not succeed and the loan goes into default this can mean the loss of personal property for the business owner.

Bank loans are one way that many aspiring franchisees choose to get their new business off of the ground, but they’re not for everyone. If you’d like to learn more about the franchise purchase process, as well as the AtWork opportunity, click HERE or call 888-553-1745 today!

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