More and more franchisors are offering franchise fee funding and loaning money to their franchisees to help them get started and they do so a fair interest rates and returns.
Should you are partake in such an offer if it is available? My thinking on this has always been yes, and this is what I advise to new franchise business opportunity buyers who are fortunate enough to have such an offer and also need the funding to get into their own business.
Why you ask? Well, it has always been my contention that franchising works because the franchisor has a vested interest in the franchisees success.
And that fact would be even more so, if the franchisor has lent them monies to open the business in the first place and of course, want to be paid back in full.
Okay, so if the terms of the loan are decent what is there to lose, what is the downside, are there additional risks in going for this cosmic break? Yes, there are additional things to think about, you see if your franchise agreement is tied to your payment structure and performance of the loan, and if you miss a payment, your franchisor could start immediate termination proceedings and make that clock start clicking while putting the franchisee in default.
If the franchisee does not emerge from default then the franchising company could walk in and kick them out without.
Thus, all their hard work is completely gone, and the former franchised outlet owner will still owe a good part of that debt to the franchise company.
Please consider all this.