How to Finance a Franchise Business in India?

Ensuring you have a good history of managing finances responsibly is crucial. Check for any inconsistencies and discrepancies in your credit report and get them corrected as soon as possible. So, it is highly recommended to prepare well for franchise financing before you apply for it.

Key Features of Franchise Finance

Before you start, ensure you understand that the franchiser gets into a formal agreement with you based on a time duration that may vary from one business to another. Secondly, the franchisor provides its products/services and the brand name of its company for shared profits. You have to pay a franchise fee to get started. Here are some of the significant characteristics of franchise finance:

Franchise Loan Amount

One of the key features of applying for franchise finance is to identify your working capital, initial setup expenses, and the cash you need in the beginning to run a successful franchise business.

You must make comparisons among various franchise finance providers based on the loan interest rate, loan tenure, reviews/ratings, customer support, and additional charges. The loan amount depends on your requirements, size and volume of the franchise, credit score, age, financial health, and profile.

Calculate your Franchise Loan EMI Amount

You can use a loan EMI calculator to assess the monthly EMI and see if it matches your monthly budget. EMI can be calculated based on the loan tenure, loan amount, and interest rate offered by the lender.

Be Ready with a Robust Business Plan

To apply for franchise finance, you should be ready with a comprehensive business plan that constitutes:

• Your details, work experience, and skills

• An outline of the existing market, trends, target audience base, and competitor analysis

• Complete information regarding the working capital, infrastructural setup, premises, and location, of the business

• Details regarding your management team, marketing strategies, and investment required to fulfil each section of the franchise

• Your financial status

Factors Evaluated by the Financial Institutions

To apply for a Business Loan for franchises, you must adhere to the crucial factors that the financial institutions evaluate:

Age and Nationality

You should be an Indian national in the age group of 21-58 years.

Financial Status and Earning Capacity

Your financial stability, earning potential, previous experience, bank status, and other financial credentials play an important role.

Credit Score

Your credit score, repayment capacity, history of finances, credibility, and potential to handle debt are key factors that franchise finance providers will consider.

Business Plan

Financial institutions will consider the business plan you submit that covers the capital required, location, business requirements, employee strength, scope of business, and other financial strengths.

How to Apply for Franchise Business Loan?

Here are the steps you need to follow to apply for franchise Business Loans online:

• Go to the unsecured Business Loan page on the Hero FinCorp website and click ‘Apply Now’.

• Fill in the online application form with all the key details asked for and submit the relevant documents.

• Wait for the verification and approval of the loan.

• After the approval, you will get a loan offer.

• Accept the loan offer to get the franchise loan amount into your account.

Documents Required to Avail Franchise Finance

Here are the documents you need to submit to avail of franchise finance:

• You should fill out an application form and submit a proper business plan.

• Submit your Passport-sized Photograph, along with KYC of yourself and your partners (with Identity/Age/Address/Income proof).

• Last six months’ bank statement and ITR/Sales Tax copy of previous years.

• Any other documents required by the lending institution. 

Conclusion

Franchise financing can become easy with this guide. Be smart and choose the best Business Loan for the franchise based on comparisons and due diligence. We at Hero FinCorp offer lucrative loan offers for entrepreneurs and self-employed professionals, which help investors to manage the franchise cost, operational capital, and the required cash flow. 

FAQs

1. Is franchise a profit?

Yes, franchises benefit from a good profit margin from the beginning because of existing demand and brand value. You also get relevant support from franchisers that help you maintain the quality and service of franchises.

2. Does the franchise fee have GST?

Usually, the payment made to the franchisor includes GST if the franchisor is GST registered. If you are also GST registered, you can claim a GST credit on the amount paid in the initial franchise fee and franchise renewal fees.

3. Who pays the franchise fee?

The franchisee has to pay the franchise fee to the franchisor. 

4. What percentage is the franchise fee?

The franchise fee is usually paid monthly or quarterly and ranges between 4-10% of the revenue.