Many entrepreneurs balk at the overwhelming statistics facing new small businesses: 33% will fold within their first couple of years, and 56% will not likely make it past four. Many go under the common notion of thirds - that one third of small businesses will turn a profit, one third will break even, and the last third won't ever break outside of a negative earnings scenario. Still wanting to run their very own business but fearing these odds, many will then turn to opening a franchise, which usually still calls for franchise loans.
Franchising is, in essence, a similar option to opening a series of chain stores. Whereas a single company looking to expand will open up a chain of stores using their own funding, employees, marketing, etc, a franchisor expands their brand by giving these responsibilities to a potential franchisee in return for permitting them full use of their trademarked name, marketing as well as other business aspects unique to that particular brand. If a franchise fail, this frees the franchisor from personal loss given their lack of a direct stake in its success.
However, it's a lucrative proposition for an entrepreneur since the already established success, and people's preexisting knowledge of the brand and marketing help assure a certain customer base, making for a a lot more sure bet than starting a completely new independent business. In a nutshell, a franchise is a brand name establishment that is independently owned and managed by a third party under permission and guidance from that franchise's parent corporation.
However, considering that the entrepreneur is basically looking to purchase permission to use a brand name, along with a recognised business model from a large franchisor, they still must put personal financial stake in the operation which are often acquired via franchise loans.
Franchise loans resemble virtually any other type of business loans in that they are granted by a lending institution for use in establishing a business with the business owner's intention of repaying the borrowed funds. How big various franchise loans will naturally vary with respect to the brand of the franchise an entrepreneur is looking to open, some of which are vastly cheaper than others.
Subway restaurants, as an example, are possibly the most popular franchise in the United States, having a startup cost ranging between $84,300 and $258,300. On the other hand, a 7-11 can be opened for as low as $40,500, while a Hamton Inn can cost around $13,148,800 to open. Of course all of these startup costs rely on many factors starting from geographical location, to size and scale of the establishment, to the economic climate of the area where their opened. Regardless, even cheaper franchises cost a significant amount, making franchise loans more than necessary for the average entrepreneur.