Business Franchising, Popular Investment Choice for Banks

By: Nazeer Daud

Critical to starting a business is having the appropriate finance in place, and money alone is the number one reason most - as much as 90% - of business ventures fail during the early start-up period. While management failure does also play a part, it is money that makes any business worthwhile and gets it off the ground. At the same time, business franchising is a popular way of starting a business and becoming your own boss, and for a variety of reasons business franchising start-ups tend to be viewed more favourably by banks and investors. There are numerous key business reasons for this bias.

Firstly and most importantly of all, business franchising is a proven and tested business model. By virtue of being a business franchise, any opportunity of this nature requiring money has already been proven to work in another geographical area. Someone else has already demonstrated that the business model has the ability to work and generate revenues, and as such it has been franchised out to other business people. As such, banks tend to consider the business model less of a risk, allowing them to base their decisions on the faith they have in the individual in front of them rather than the specific intricacies of the business model.

Secondly business franchising is given more priority in funding because there is support available from the parties that have already made a success of the business. Because help is on hand and usually some form of training is provided, there's no trial and error with a franchise. The franchisees know exactly what to do and how to do when it comes to making a success of the business, which translates into a lower risk proposition and makes them instantly more creditworthy. The only consideration running through a bank manager's mind is whether or not the business will be able to repay the loan they are offering, and with a business franchising opportunity and the support inherent in that, they find their answer more readily.

Another key reason business franchising received funding preference from banks and other lending institutions is that there is already a degree of goodwill associated with the franchise name. This means that the business franchising opportunity will benefit from the branding and marketing previously invested in by the franchisor, which will give the new business a lift when it opens. Simply because a business has a recognisable identity and has previous goodwill, it is less of a risk and less likely to struggle to find those all important initial paying customers and lenient suppliers.

Business franchising as a business model makes sense, and everybody on all sides of the table are kept happy. For the banks and money lenders, business franchising provides a much lower risk way of investing in businesses, and a much more guaranteed way of earning money on the finance offered. As such, banks are much more willing to invest in franchising opportunities than in other business ventures, making it far easier to raise the necessary capital to start up and survive the initial few years.

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