When you are trying to finance your franchise, your first thoughts may be of your local bank or your family and friends, but there is another option: finance companies. These companies can often provide some of the financing you need with interest rates slightly higher than those of traditional financial institutions.Finance Companies
First, let's talk about what a finance company is. These are companies designed specifically for loaning money to consumers and to small businesses. Unlike banks which provide other types of financial services, a finance company is not. You can't open a checking account with a finance company, for example.
Finance companies have become a leading method for financing small businesses. In fact, they are the second most popular option - just after banks. Part of the reason for their popularity is that they are more likely to approve the loans and to approve larger loan amounts than traditional banks.
If you're credit rating is not perfect, then a finance company is probably going to be your best option. They specialize in working with individuals who have less than stellar credit and often get out loans to people who would not qualify for one through traditional lending institutions.
Another benefit is that some finance companies, such as The Money Store, will even provide loans for franchises while some banks will not.
On the downside, finance companies tend to look for a large amount of collateral than banks do. Of course, you're going to need collateral no matter where you go for a loan, so this isn't that big of a deal. Plus, finance companies tend to loan larger amounts of money for the collateral you do have than banks do.
Another downside is that the interest rates tend to be higher so make you don't borrow more than you need. For this reason, finance companies may not be your first choice for financing but they should be worth considering, particularly if you've had trouble getting financing through a bank.Finance Companies & Lease Financing
If you need financing in order to purchase equipment for your business, then you may want to consider lease financing. In recent years, more businesses have chosen this option because it allows them to spread the cost of their equipment over time instead of having to pay for everything upfront. This makes particularly good sense if your business is going to require a lot of pricey equipment.
Another good reason to choose lease financing is that you still have credit available for loans to fund other parts of your business, such as construction or working capital. Leases aren't considered debts in the same way that loans are so they don't prevent you from being eligible for loans.
There are other advantages, too. For example, if you took out a loan to purchase your equipment then your payments would most likely vary depending on changes in interest rates. With a lease, you pay the same amount every month for your equipment. You know exactly how much you will have paid on the equipment by the end of the lease and won't have to worry about any nasty surprises.
You may also find it easier to stay up-to-date with your equipment. Most lease agreements will allow you to upgrade your equipment at some point into the lease or at the end of the lease. This means you can get the latest equipment without having to spend a lot of money initially.
The bottom line is that even if you do not qualify for a bank loan there are some alternative financing methods available. In fact, many of these alternatives provide better benefits for small business owners than do the loans from traditional banks.