When deciding if you can afford to purchase a franchise business or not, keep in mind that in many cases the franchisors themselves may be able to assist you with several financing options. It never hurts to ask if they have financing programs available, and you might end up with better terms and conditions than if you tried to obtain financing on your own. Here are some options:
Direct financing: This occurs when the franchisor is able to offer financing to the franchisee out of their personal pocketbook. The franchisor can often defer the upfront purchase price and additional initial fees until a later date by securing a promissory note from the franchisee. In other cases, a more substantial lending program may be available if the company is financially stable enough to handle the burden.
Indirect financing: This can also be called third-party lending and it occurs when a franchise company has formed a business relationship with a particular third-party lending institution to offer indirect financing or leasing. This often means that the franchisor guarantees repayment on behalf of the franchisee if they fail to perform to the standards set out in the contract, and protects the institution from a risky investment.
Remember, when seeking franchise financing (whether from your franchisor or another source), it's important to have a comprehensive franchise business plan in place that shows how you will operate your new franchise, and what available collateral you have. In many cases, it is beneficial for the franchisor to assist you with financing because it is important for them to partner with a franchisee that will succeed (which is not necessarily an investor that has the upfront capital). In other cases, franchisors want to offer financial assistance to new franchisees so that they can expand their business and revenues more quickly.