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What First-Time Franchisees Need to Know about Financing

Author: Smoothie King
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Financial capital is a barrier to entry for many new entrepreneurs. In fact, 82 percent of businesses that fail do so because of cash flow problems.

However, franchise opportunities operate a bit differently. Franchising seeks to simplify many aspects of business ownership, even financing. While independent business owners often seek traditional bank loans, franchise brands may offer financing guidance to first-time owners. For those new to business ownership, it can be challenging to get loan approval without a proven track record.

Franchise brands seek to bridge the gap for first-time franchisees. The franchisor can walk aspiring business owners through this process, and some brands – like Smoothie King – even have financing options they can recommend to candidates.

Popular Strategies for First-Timers

Take into account franchise fees, operating fees, working capital and other possible costs when considering the right type of loan for your franchise. Although they sometimes require a complex application process, a Small Business Administration (SBA) loan is a popular choice.  These loans typically offer more competitive payment terms and interest rates, lower down payment, and no prepayment penalties. These are all attractive to first-time business owners and can provide peace of mind to borrowers.

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Another option is Rollovers as Business Startups (ROBS), or using retirement funds to self-fund a loan. There are no penalties or upfront taxes, and these eliminate the need for loan.

Many business owners use a combination of SBAs and ROBS to fund their businesses. You should consult a financial professional to help you select the best financing option for your business venture.

Smoothie King Financing Options

Each franchise system is different, but many have third-party lenders they can recommend to franchise candidates. Candidates often have a higher chance of approval and competitive rates due to the positive relationship Smoothie King maintains with certain lenders. Smoothie King also offers asset verification, credit check and confirmation at no cost to candidates.

Chad Tramuta, Franchise Development Manager at Smoothie King, said this process provides confirmation.

“For Smoothie King, it’s worth the investment to provide these services at no cost,” Chad said. “Not only do we advocate for our franchisees’ business success, we show there are financing options available, which is a big worry for many first-time owners.”

Candidates are free to research and choose a variety of lender options, but a majority of Smoothie King candidates choose to finance through our recommended lenders.

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“We require candidates to reach out to current franchisees because validation is key,” Chad said. “I recommend talking to a variety of current owners across the country, and ask for their financing advice.”

Chad added that candidates should ask existing owners if they would invest again, knowing what they know today. This question is a great gauge of franchisees’ satisfaction with the brand.

Financing can be an intimidating process for a first-time business owner, but Smoothie King works to help make the process is easier to manage. It’s important to research all your options and choose the best fit for your new business before moving forward with a loan or financing plan.

To learn more about franchising opportunities with Smoothie King, download our free franchise kit.

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