Smart funding: Why strategic borrowing can empower franchise success

Borrowing needn’t be a barrier. Paul Hansen of Novuna Business Finance explains how to know when it’s right for you…

“How much does a franchise cost?” is one of the first questions many entrepreneurs ask when they start researching franchising. Whether you are looking for low-cost franchise opportunities or you are willing to make a significant investment if you find the right franchise partner, understanding your financing options is essential.

Investing your own cash vs. strategic borrowing

In an ideal world, nobody would be living with debt. However, when you hear “no debt is good debt,” to what extent is this true? Throughout time, people have pioneered creative solutions for everyday life—from back scratchers to robots—and borrowing money may be the solution to your specific business problem.

Problem solving for business owners requires investment of both time and, in most cases, money to achieve their goals and objectives. However, this isn’t to say that borrowing money is always practical or the right method for you—in some circumstances, it won’t be.

As a prospective franchise owner, you shouldn’t let the idea of borrowing money and building debt frighten you. Borrowing money could be used to gain leverage, enabling you to grow your business and capitalise on immediate opportunities that, without the investment, could pass you by. The key is identifying the right time, the right amount to borrow and, most importantly, how and when you will be able to repay it.

Because repay it you must. To ensure this, franchisees will sometimes have to put their assets at risk to support a lending application. As a result, it is important to ensure borrowing is affordable for both you and the business

When using your own cash reserves, it is important to weigh up the pros and cons. While using your own money would leave you debt free, it may leave you exposed should your business begin to struggle. While franchise businesses have a lower rate of failure, as business owners we should acknowledge and understand the risk involved in business.

Remember, many lenders have various repayment options for new or seasonal businesses, to support business owners during initial start-up or for less profitable times of the year. For example, Novuna Business Finance offers a ‘smart funding’ solution to support seasonal business needs. Flexible payment options are extremely beneficial for new small enterprises and can be a key driver in building a successful business.

You may also be considering developing your current business even further—in the context of franchising, you may start a multi-unit operation, upgrade your assets or move your site. You may not be able to achieve this solely through your own funds, so building your credit profile would be crucial towards convincing lenders that you’re a credible, dependable borrower—this can only be achieved through franchise funding options like borrowing.

Key questions to before you borrow money: 

• Will you be able to make repayments, even during challenging times?
• Do the repayment options tailor to your specific business needs?
• Do you see value in building a credit profile?

The rest is up to you. Best of luck!