Franchising Classroom Lesson 3: Determine your financial resources to own a franchise.
 
The first rule of financing a franchise, is not to underestimate the amount of money you will need. It's only natural to try and be frugal and optimistic when planning how much money you'll need to start your own business (or how much debt you will have to take on), but our rule of thumb is to figure out how much you think you will need--and then add 10-20%. The bottom line is that most franchisees put down between 20-40% of the total cost and finance the rest.
 
The following sources are places to look for franchise financing.
 

1. Personal wealth.
2. Friends and family financing. The advantage of borrowing from these sources (or selling them equity in your franchise) to start your own business is they know you and-presumably-like you. The disadvantage is if things go badly, they may like you less later.
3. The franchisor. More franchisors are offering at least some form of financing to individuals who want to own a franchise.
4. Banks. In general straight bank financing has become harder to get for franchisees to people who desire to own a franchise.
5. Leasing. This can be a way to obtain equipment, fixtures, and even the business's location.
6. Government sources such as SBA.
7. Venture capital and/or limited partnerships. This solution is usually confined to very large investments, such as an entire franchising territory. In return, you will likely have to give up a big chunk of equity, but most franchisors require you to retain more than 50% of the business franchise ownership.