Buying a franchise can be an exciting opportunity for entrepreneurs with significant benefits from the established brand awareness to the purchasing power to the operational support. The problem for most looking to become a franchisee is the high up-front cost. With Title III of the JOBS Act now in effect, equity crowdfunding can be a great way for entrepreneurs to line up the financing they need to make their dreams of owning a franchise come true or even for an existing franchisee to expand.
There are numerous benefits to franchisees in pursuing this method of financing, including:
1. It’s less risky.
Let’s face it. The options for financing a franchise are limited. Unlike other industries, venture capital and angel investing have never really been an option for franchise owners. The most viable options are grants and small business loans. However, neither are easy. Grants are very hard to come by – they’re limited in number and the competition for them can be tough. Depending on your financial situation, small business loans can also be challenging to obtain and are often quite risky, requiring a personal guarantee. Putting your home or your retirement savings on the line is daunting and risk few are willing to take.
With equity crowdfunding, there is limited risk. Given the limitations set by the SEC on how much money per year you can raise, you’ll likely have to invest some of your own money or take out a loan in addition to funds raised through a successful campaign, but the amount will be far less. And unlike with a loan, you don’t have to worry about paying anyone back – sure, you owe it to your investors (and yourself) to put all you have into the business to make it successful, but you don’t have to worry about losing your home or your savings should something go awry
2. It’s easier to secure more financing if you need it.
As we mentioned before, with the SEC limitations on how much money per year you’re able to raise, you’ll likely need to find another source of financing in addition to equity crowdfunding if you don’t have the cash available. A successful equity crowdfunding campaign will make this much easier. With capital in the bank, you’ll be able to secure more favorable loan terms and will likely be able to avoid a personal guarantee, limiting your risk.
3. You build a natural client/customer base.
Building a client or customer base can be a challenge for any new establishment. With an equity crowdfunding campaign you start building that base before you even open your doors. You’re building something that will in all likelihood benefit your community from increased tax income to job creation and inviting others to take part. That will appeal to many.
As you gain investors, those individuals will be natural customers. They’ve expressed serious interest in your business and believe enough in it to invest their money in it. Of course, they’ll want to support you by becoming a customer and spreading the word to their networks.
At the end of the day, equity crowdfunding a franchise can be a great alternative to other more traditional sources of financing. If you’d like to learn more about equity crowdfunding a franchise, contact us for a FREE consultation. We’ll talk you through your business plan and help you understand if equity crowdfunding is right for you.