Funding of the franchise business

A brief highlights on all the options available to a franchisor are enumerated as below:

Banks Loans

The first thing that comes to the mind of an investor while procuring the required fund for a franchise venture is to approach a bank. Franchising in India is very niche in nature and does not have legislature in place. Due to this, banks consider franchising on parity with any other business loan. Most of the banks don’t give industry-specific funding options to brand franchisees and often treat them at par with independent start-up businesses. Consequently, banks offer loans on stringent terms and conditions.

Personal Links, Chit Funds and Society

There are times when a franchisor is unable to persuade the bank on the reliability of the franchise proposition due to reasons of not maintaining the Income Tax papers or they don’t have a comprehensible net worth to show to banks or other institutions. In situations like these, a very unique way of funding is available, which is primarily available only in India. The same is called lending system within communities. This form of lending is very common in India and there is a fantastic system of low cost, or at times no interest loans that these communities provide to their people. Similarly, a lot of chit fund companies also offer a monthly or a quarterly payment system against which money is spent to their members for their funding requirements.

Collateral Funding

Another source of funding that a franchisor can use is by offering assets that they have against collaterals like gold collateral and loans against properties or deposits.

Venture Funding

Last but not least is an option of approaching a venture funding company that fund exclusively for franchise businesses. Such firms work very closely with budding entrepreneurs and help them with their funding requirements for specific opportunities. Such initiatives ensure that the lending company understands the dynamics of the industry and evaluates the risk return matrix before taking the decision of funding the business opportunity.

To get a right source of funding can be extremely challenging for the franchisor in case he doesn’t have the right mix of conviction and necessary long term vision for the project. Thus, it is extremely important to build a strategy, which can on one hand mitigate the risk involved in the venture and on the other hand help in extenuating the required funding. Such propositions will help in channelising the long term success for all the parties involved in the franchise business.

A brief highlights on all the options available to a franchisor are enumerated as below:

Banks Loans

The first thing that comes to the mind of an investor while procuring the required fund for a franchise venture is to approach a bank. Franchising in India is very niche in nature and does not have legislature in place. Due to this, banks consider franchising on parity with any other business loan. Most of the banks don’t give industry-specific funding options to brand franchisees and often treat them at par with independent start-up businesses. Consequently, banks offer loans on stringent terms and conditions.

Personal Links, Chit Funds and Society

There are times when a franchisor is unable to persuade the bank on the reliability of the franchise proposition due to reasons of not maintaining the Income Tax papers or they don’t have a comprehensible net worth to show to banks or other institutions. In situations like these, a very unique way of funding is available, which is primarily available only in India. The same is called lending system within communities. This form of lending is very common in India and there is a fantastic system of low cost, or at times no interest loans that these communities provide to their people. Similarly, a lot of chit fund companies also offer a monthly or a quarterly payment system against which money is spent to their members for their funding requirements.

Collateral Funding

Another source of funding that a franchisor can use is by offering assets that they have against collaterals like gold collateral and loans against properties or deposits.

Venture Funding

Last but not least is an option of approaching a venture funding company that fund exclusively for franchise businesses. Such firms work very closely with budding entrepreneurs and help them with their funding requirements for specific opportunities. Such initiatives ensure that the lending company understands the dynamics of the industry and evaluates the risk return matrix before taking the decision of funding the business opportunity.

To get a right source of funding can be extremely challenging for the franchisor in case he doesn’t have the right mix of conviction and necessary long term vision for the project. Thus, it is extremely important to build a strategy, which can on one hand mitigate the risk involved in the venture and on the other hand help in extenuating the required funding. Such propositions will help in channelising the long term success for all the parties involved in the franchise business.