Which type of financing is the right one for your franchise foundation?

As with any business start-up, opening a franchise business requires a basic financial investment in addition to your personal suitability as a franchisee and a well-designed business plan. Commercial space, goods, employees and license packages have to be organized and paid in order to successfully establish oneself in the franchise business. Also, those who lack the necessary funds immediately before the founding, can benefit from a franchise concept thanks to various financing strategies with borrowed capital. 

To date, financing a franchise start-up from its own resources remains the cheapest and easiest method. Although it often requires the investment of long-term saved capital, which is often associated with opportunity costs in private life, yet this way no debt is accumulated and interest is eliminated. The amount may be available immediately and need not be obtained through external partners such as credit institutions. The franchisor will remain positive in the course of the contract negotiations, if the financing is provided by a single source, as possible uncertainties and defaults by third parties are not present. However, as not every potential franchisor is able to cover the entire investment itself, debt financing can be a suitable alternative.

Loans, risk, and interest on debt financing

If the equity capital is insufficient for all parts of the franchise start-up, many founders first turn to their home bank or their trusted bank. For larger one-time payments, such as the purchase of work material, machinery, interior or the entry costs into the franchise license, it is recommended to take out a loan with fixed interest, terms and repayment installments. Engel & Völkers advice: Interest costs can usually be deducted via tax.

Regular costs or short-term liquidity difficulties, on the other hand, can be better regulated by means of a current account overdraft, since this works without fixed terms and repayment installments, but usually involves higher interest rates.

The difficulty here is the Bank's conviction: Often, banks require up to 50% equity of the total financing of the new franchise or insist on proof of income in the form of an income tax return, which must have be issued for the period of self-employment. If both proofs can not be provided, so-called guarantee banks can present an option. These banks are subsidized by federal or state governments and usually offer much lower initial conditions for a guarantee - only about 20% of equity is sometimes sufficient. The house banks then accept the guarantees as collateral.

Alternative entry methods into franchising

Depending on the individual situation of the founder, other sources of money may be considered that are not from equity. For example, family members and friends can be asked for funding. While this method may operate without interest, it may permanently affect relationships in the event of yield and profit losses.

In addition, various foundations, associations and also the federal government are promoting the founding of startups, starting with free consultation to larger grants for the upcoming investments. For example, one of the focal points can be the High-Tech Gründerfonds, the INVEST funding program or the Business Angels.

A further option is a change in one's own perspective: instead of searching for ever larger sources of funding for the project, costs can be effectively saved by restructuring the start-up project. A cheaper property for the store, new conception of employee contracts or the contact to more efficient business partners can help to reduce the required costs quite a bit.

Your entry into the real estate franchise - turned into reality with Engel & Völkers

As a franchisor with more than 30 years of tradition on international real estate markets, Engel & Völkers knows the topics which motivate new franchisees when it comes to possible financing hurdles. In order to pave the way for your existence as an independent real estate broker in our name, we have established contacts with many banks, sponsors and funding agencies, which can provide our newcomers first-class conditions for various forms of financing. Open your own real estate shop with the well-known Engel & Völkers CI, which is associated worldwide with competent service in terms of high-quality real estate, yachts and airplanes. Work flexibly, independently and successfully in a professional field that is characterized by fascinating architecture, an intercultural customer base and great career opportunities.

Become part of our expanding successful community and realize yourself - as an Engel & Völkers franchisee. If you have any further questions regarding debt, support and franchisee licenses, please do not hesitate to contact us personally!