If you’re thinking about buying a franchise, then you’ll need to decide how to finance your purchase. Getting a business loan from the bank might seem like the most traditional financing method, but finding outside investors is another option worth considering.
One option is a franchise angel investor, which is “an individual or an organization that provides the necessary capital for someone to buy a franchise. The money given is an investment, not a loan, which means the angel investor will own a part of the business with the intent of seeing a return on investment.”
Another option for financing through an investor is a franchise investment fund, which is a pooled investment vehicle. Similar to a mutual fund or private equity fund, a franchise investment fund allows multiple investors to pool their capital in order to acquire and manage a portfolio of franchise businesses. A professional will manage the fund with the aim of generating an ROI (return on investment) through the success of the franchises within the portfolio.
What Are the Benefits of Using Franchise Investment Funds?
There are several unique benefits to using a franchise investment fund when compared to a traditional bank loan. These include:
- Access to Capital – Most franchises have minimum liquid capital and net worth requirements. The pooling of funds offers franchisees access to capital that would otherwise be difficult to obtain, and in some cases, the fund can help a potential franchisee meet those requirements. Additionally, the fund could decide to invest further in a specific franchise, which would provide additional capital for renovations or expansion projects.
- Streamlined Application Process – Franchise investment funds often have a streamlined application process, which could make it easier and faster for franchisees to secure funding.
- Networking Opportunities – Partnering with a franchise investment fund often provides access to fellow franchisees, investors, and other industry contacts. These relationships can help a franchisee’s business to grow as they collaborate, learn, share insights, and gain support.
- Economies of Scale – Some franchise investment funds are able to negotiate bulk purchases of supplies and services for the franchises in the fund. These cost-saving opportunities are a huge perk for individual franchisees.
- Long-Term Support – Because of their vested interest in the success of the franchises they support, investors often provide ongoing support and resources to help the franchisees succeed. This can include training, marketing, and operational resources aimed at improving the business’s performance.
3 Steps to Prepare for Franchise Investment
- Assess Financial Readiness – Evaluating your financial readiness for a franchise investment fund involves a comprehensive review of your financial position, obligations, and goals. This includes assessing your personal financial health, understanding the required investment you need for the franchise, having an accurate cash flow analysis for the franchise, and your long-term goals. You should be prepared and financially stable to ensure the success and sustainability of your franchise investment.
- Identify Suitable Franchise Investment Funds – If you have thoroughly assessed your financial readiness and extensively researched different franchise opportunities, then you should be prepared to partner with a franchise investment fund. A franchisee should identify a franchise investment fund that supports their investment goals, aligns with their industry preferences, and offers the support and expertise they need to succeed.
- Understand the Application Process – The application process might vary from one fund to another. Some might have extensive requirements, while others might have a more streamlined process. It’s a good idea to consult with a professional in franchise investments to make sure you understand the specific application process and terms of the fund.
How Do You Apply for Franchise Investment Funds?
Again, each fund’s specific application process will vary, but in general, you’ll need to do the following:
- Gather the necessary documentation
- Meet the fund’s eligibility criteria
- Craft a compelling business plan
- Complete the application and approval process
It is highly recommended to consult with a professional in franchise investment funds to help you effectively navigate the process.
Interested in Purchasing a Franchise?
Securing financing is a key step in the process of franchise ownership, and FranNet is here to help. Our expert franchise consultants can guide you on your funding options, whether it be a franchise investment fund or another method. We will provide the resources you need to make an informed decision while walking you through the process from start to finish. You won’t need to pay us a dime! Schedule your free consultation today to get started!