Franchise Companies: Find out more about Franchise Finance

by Richard Womack

 

 

 

Young entrepreneurs and those who want to become one have a hard time finding money because there are no demonstrable business successes. Who thinks about starting a business as a franchisee, should know: Again, this requires equity – sometimes even more than the bank requires. However, franchise business start-ups and franchisor support have made it easier for start-up franchise owners to get funding for their project.

Entrance fee in addition to the operating equipment

Entrance fee in addition to the operating equipment

Typically, a franchisee pays to the franchisor a one-time fixed entry fee as well as ongoing fees based on sales. The entrance fee is very different with the approximately thousand offerers in Germany, with 1.000 to 20.000 euro one must count on. However, this only requires the permission to become self-employed with the franchisor’s business model and brand. Business equipment, goods and the like still have to be paid by the founder. Depending on the operating mode, this can be quite expensive – for example with the extensive set-up of a fast-food restaurant. Franchisors expect about 15 to 20% equity, depending even more on the industry. They do so for two reasons. First, the contractor has a certain creditworthiness, and secondly, he shows that he is willing to take entrepreneurial risk and become involved.

If the equity is not enough

If the equity is not enough

Of course, there is the possibility, with low equity on a franchising offer with lower capital requirements. But on the other hand, the newly formed company should be in line with the interests and inclinations of the founder, and therefore a completely different industry with less cost is likely to be out of the question. A well-prepared business plan may convince a bank’s loan officer. The franchise concept helps because fundamental experience with the business model is available and brand awareness can be assessed. In addition, many franchisors are offering financial support and bank talks to new partners. The franchisee should inquire in advance with the federal promotional bank, KfW. KfW supports lending by taking a large part of the risk from the financing bank. For example, the KfW StartMoney of up to € 100,000 is associated with an 80% indemnity, meaning that your own bank only bears 20% of the default risk. If at least 10% equity capital is available, which is likely to be the case on a regular basis due to the requirements of the franchisor, the partial financing for founders and the universal start-up loan from KfW may also be considered. In addition, KfW offers support programs from federal, state and EU start-ups that can also be used to set up a franchise. Another alternative is crowdfunding, financing from the swarm, which is rather rare in the franchising segment.

 

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