What is Franchise Financing?
For startups and SMEs, becoming the franchisee of a prominent brand is the ultimate win. They get strategic and infrastructural support from a large enterprise and avail of incredible opportunities to profit and prosper.
It’s not easy, however, as major franchisors have significant demands for a franchisee. The infrastructure details, working capital, business’s disposable income, CIBIL score, reputation, cash flow, etc. – potential franchisees must be able to tick all these factors, and healthy financials are essential for everything.
How Franchise Financing Works?
Here’s how franchise financing works:
- Step 1: Develop a proper plan: Planning is always the first step. Period!Think how much money you need and for what reasons. Estimate revenues, expenses, working capital, royalty fees, profit margins, and break-even points as accurately as possible.
- Step 2: Discuss With Your Franchisor: Franchisors should always be the first point of contact for franchises when it comes to franchise financing. Almost every franchisor provides some kind of franchise financing program wherein they either provide debts directly or collaborate with financial institutions to provide so. Franchisor funding has numerous benefits, which are discussed in the section below.
- Step 3: Assess Your Options and Conditions: Whether you opt for franchisor financing, some other loan scheme, or crowdfunding, it is always good to have multiple options at hand. Check loan eligibility criteria in all cases alongside interest rates, repayment terms, and other factors.
Note: If your business is yet to receive break-even point, then think carefully about how much money you should borrow. - Step 4: Calculate EMI and Apply: Finally, choose the funding options that offer convenient interest rates and tenure. Keep in mind your financials, calculate EMI and then apply.
Eligibility Criteria and Documents Required
Following are the essential documents for a loan application and generic eligibility criteria:
- Minimum 18 years when applying for the loan and maximum during the time of maturity
- Self-employed
- The business must be at least three years old.
- CIBIL Score 700 or higher
- Balance Sheets
- Last six month’s bank statements
- Profit and Loss Statements
- Business Incorporation Documents
- Establishment Certificates
- GST Return Filings
- Trade License
- Proof of Ownership
- Personal Details
Interest Rate and Fees Applicable
Rates vary across lending institutions and are equal to the rates associated with different financing avenues such as business loans, term loans, working capital loans, etc.
Common Franchise Financing Options
- Online Business Loans – Apply for commercial business loans through online corporate debt platforms such as Yubi and get access to an array of different funding options
- Business Lines of Credit – Lines of credit are extremely useful for startups as they enable them to avail different values of loan amounts up to the credit limit.
- From the Franchisor- Franchisor financing is one of the most reliable and basic forms of franchise finance.
- Venture Capitalists – Venture capital firms are another great way for startups to gain quick franchise loans at low interest rates.
- Alternative Lenders- Alternative lenders have fewer restrictions and quicker turnaround times and offer different kinds of business finance. However, interest rates are high, and so are processing and convenience fees. Choose an alternative lending source if you aren’t able to qualify for loans from banks.
- Crowdfunding- Crowdfunding has become a popular way to kickstart a business. There are many online crowdfunding platforms for specific industries and business categories.
- Loans from Close Groups- Borrowing from friends & family can also be a great way to finance your business. Known as pre-seed funding, money is availed on the basis of upfront mutual agreements.
How to Get a Franchise Loan
- Check your personal credit score- A franchise loan is not provided to a borrower if the credit score is low.
- Organise financial documents- Keep all the financial documents like the Balance Sheet, Profit and Loss statement, IT returns, etc.
- Create a business plan- A strategic business plan is imperative to get a franchise loan
- Submit an application- Once all the documents are arranged, submit the application.
- Await approval- Wait for approval after the screening of the documents submitted.
Tips to Compare Franchise Financing Options
- Maintain a healthy cash flow: While choosing a franchise finance option, know that you will have to pay the EMI, send the royalty fee, maintain working capital & meet operating expenses, pay utility bills, and try to maintain a healthy profit.
- Craft a proper franchise business plan: Include personal details, business details, skills and work experience, complete business outline, etc.
- Discuss your financing plans with your franchisor: They should always be the first point of contact for any franchisees, and many major businesses offer exclusive franchise finance programs.
- Scope out different business loan schemes from varied banks and NBFCs: A good credit score, collateral, or a personal guarantee may be essential in most cases.
Why choose Yubi for Franchise Financing?
Yubi is India’s leading corporate debt financing platform that offers a wide variety of products. Businesses of all shape, sizes and kinds can avail of term loans, working capital loans of credit, and much more from more than 750+ lenders and banking institutions.
10 Best Financial Franchises in India
Trustline Securities
- Provides a wide range of financial services
- Strong presence in the financial sector
- Founded in 1985 and franchising since 1989
- Initial Investments: From Rs. 0.1 lakhs
Priceless Collectables LLP
- Carries out high-end research of precious collectibles and offers portfolio diversification options for high-net-worth individuals
- Asset selling company
- Founded in 2012 and franchising since 2013
- Initial investment: From Rs. 2 lakhs
Rupenet Technology Solutions Private Limited
- Offer secure and easy ways to transfer funds, pay bills, recharge easily, etc.
- State-of-the-art infrastructure
- Founded in 2011 and began franchising in 2018
- Initial investment: Rs. 0.5 lakhs
- Royalty fees 20% of revenues
IBG eChits India Private Limited
- First Indian company to introduce Digital Chit Funds and online remote auctions
- Founded in 2016 and franchising since 2019
- Initial investment from Rs. 0.1 lakh
The GIM
- Online insurance provider with a particular focus on customer service and fair ethics
- Founded in 2016 and started franchising in the same year
- Initial investment from Rs. 0.1 lakhs
- Royalty fees is 15% of revenue.
Nanotech Web Solutions India (P) Ltd
- Developer of IT solutions for SMEs
- Cloud-based solutions for GST billing & returns, inventory management, accounting, marketing & communication
- Founded in 2015 and started franchising since 2017
- Initial investments from Rs. 0.1 lakh
- 30% royalty fees
Standard Securities & Investment Intermediates Ltd.
- A renowned brokerage house that offers a wide variety of investment products
- Focuses on excellence in services and delivery
- Founded in 1994 and franchising since 1998
- Initial investment starts from Rs. 0.5 lakh
- The royalty fee is a whopping 65%.
Goodwill Wealth Management PLTD
- Brokerage house and investment & financial advisory services
- Founded in 2009 and started franchising in 2010
- Initial investment starts from Rs. 0.1 lakhs
Eppeok Solutions Private Limited
- Advisory and financial services company
- Founded in 2011 and franchising since 2014
- Requires initial investment of Rs. 0.5 lakhs and royalty fees of 75%
FinBucket
- A neutral online marketplace for financial products such as loans and credit cards
- Connects lenders with borrowers
- Founded on and started franchising on 2016
- Initial investment from Rs. 0.5 lakhs
- Royalty fees is equal to 5% of monthly revenue.
Conclusion
Before finalizing any franchise in India, there are certain factors to consider while selecting the best one for you. Pay special emphasis on the brand, check out what training and support are offered, find out if other franchisees have been effective or not, etc.
However, the most important thing is to align your business budget with the investment requirements of the particular brand.
So, take time to ponder and then make your move.
FAQs
Costs depend upon the nature of the business, the target market, and the franchisor’s business.
Yes, they do. Franchisor financing is the most secure franchise finance option for franchisees.
Difficulties depend upon the franchisee’s business abilities and the franchisor’s business requirements.
It speeds up the whole repayment process and also improved the borrower’s credit rating.
The pre-closure charge depends on the lenders or banking institutions, providing loan via Yubi’s corporate financing platform.
It is, but the interest rates will be very high, and the applicant business may need to pledge certain collateral as well.