Launching a restaurant franchise offers investors an excellent opportunity to grow and be part of a thriving community. As with any business decision, it’s essential to have a firm grasp of the financials before signing contracts or agreements. Roughly 64% of financing for new locations in a franchise is sourced from personal finance. However, there are many other options for those with the passion, strategic thinking and patience to grow.
Before you start with any franchise financing, be sure to discuss the rules, cost structure and approval process. Even a boutique franchise like Ori’Zaba’s Scratch Mexican Grill has its own standards to ensure proper financial solvency. The key difference is that smaller chains can offer more insight into preferred lenders and franchise-training programs that lead to long-term success.
Begin with an in-depth study of debt-to-equity ratios, franchise royalties and potential financial sources. Then, you can move on to creating an ecosystem where your Mexican food franchise can thrive using automated back-office processes and you focus on community outreach and menu development. Here are some solid financing sources for how to own a franchise.
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Most Common Financing Options for a Restaurant Franchise
Once you have all the documents and figures, including franchise cost, carefully prepared, it’s time to figure out to fund your new venture. Financial options and rates are unique to markets and individuals and, of course, not guaranteed. To help you start thinking about the best options for you and your situation, below are some examples of how others have funded their franchise dreams:
- Franchisor Financing: Some brands offer direct lending partnerships with preferred banks, making the cost of a fast-food franchise more appealing and simpler, as the lender already understands the system they are supporting.
- Commercial Bank Loans: These are more traditional options to cover a Mexican franchise. They do require strong credit histories and a detailed business plan, as well as some form of collateral.
- SBA Loans: The U.S. Small Business Administration offers SBA 7(a) and SBA 504 loans that can provide financial support for everything from first-time startup funding to fixed asset purchasing of equipment and land. As the U.S. government guarantees up to 85% of these loans, they are easier to get due to the lower lender risk.
- Alternative Lenders: If traditional pathways for how can I start a franchise are out of reach, you can seek out alternative lenders. Just go in with eyes wide open, as they will have higher interest and quicker repayment terms.
- Personal Assets: Some franchise owners choose to leverage personal savings, home equity, stock options and severance packages as collateral. This avoids interest payments without sacrificing control, but you should anticipate needing a six-month emergency reserve for operations to demonstrate solvency.
- Rollovers as Business Startups (ROBS): A ROBS arrangement gives entrepreneurs the ability to use retirement funds (401(k)s or IRAs) to finance a franchise purchase, without being subject to early withdrawal taxes or penalties.
The final few options are considered part of a “hybrid” financing plan. That would involve securing a low-cost restaurant franchise via cash from crowdfunding (Kickstarter, Indiegogo, etc.), friends and family, and “angel” investors. In many cases, when you have a strong story to sell with a proven system like Ori’Zaba’s Scratch Mexican Grill, these hybrid options become much more advantageous.
Evaluating Your Financial Readiness for Franchise Ownership
While financing is certainly a foundational decision in owning your franchise, you need to take the time to consider the broader perspective of your investment. Start by quantifying everything. Know the total available capital and discuss your risk comfort with mentors, family members or business partners. That will help you determine the acceptable cost from launch to operations.
Next, consider your talents and lifestyle. Owning a franchise like Ori’Zaba’s Scratch Mexican Grill isn’t just raw data. You are gaining the opportunity to make an impact on your local community, which often requires a bit more hands-on ownership compared to a mega franchise where the average student employee runs the show.
Finally, review the holistic landscape of the franchise you’re choosing. What is the infrastructure? Do you get personalized support? Will the brand provide marketing? Create a detailed list of questions and take the time to review the FDD carefully before you agree to any terms.
Why Ori’Zaba’s Scratch Mexican Grill Is a Smart Investment
Ori’Zaba’s Scratch Mexican Grill offers a fair and reliable balance of affordable ownership, individualized location support and scalability in high-growth regions. It is a strong option for investors due to its flexible operations, which are designed to foster community relations, making everything feel more authentic and caring. It certainly helps that you get an extensive menu filled with fresh ingredients and traditional meals that cater to both everyday customers and those with special dietary needs, such as vegetarians and vegans.
Searching for a franchise involves understanding where to find suitable financing options. There are many factors to consider, and you’ll want a clear breakdown of cost structure and ongoing operational guidance to fill in any blanks. With the right franchise on your side, securing financing options is much easier. Take the first step now by learning more about starting your own Ori’Zaba’s Scratch Mexican Grill and help celebrate an authentic brand based on rich culture and mouthwatering flavors.
