Financing Arrangements

LSU Campus

The franchisee basically has four major financial resources: the franchisor; family, friends, and relatives; the bank; and venture capitalist or outside funding agencies. Most franchisors will not become involved with the financing of new franchises, although a few of the well-established franchisors, will help finance franchisees. The two opposing schools of thought regarding financing by the franchisor are (1) that lending is not primary business and should not be engaged in, and (2) that financing should be offered to prospective franchisees to encourage buildups and the development of multi-unit franchisees. Almost all franchisors, however, prefer that franchisees have at least part of their own capital committed to the franchised unit. Most franchisors also prefer the franchisee pay all initial franchising fees out of pocket.

Some franchisors may make arrangements with a commercial lender to provide financing of certain franchising fees, startup cost, fixtures, equipment, and furniture to prospective franchisees who meet the lender's financial requirements. These loans are usually secured by a combination of real and personal property, and a portion of this financing may be guaranteed by or through the franchisor. Certain franchisors may provide discounts on the initial franchising fee to franchisees making full cash payments prior to their attending training programs.