COMMERCIAL MORTGAGES FOR FRANCHISE
Commercial mortgage for franchise is an effective means to purchase a franchise. The franchise operation appears to be very attractive for lenders because of their high success rate. Almost eighty percent of all start-up businesses fail within five years, but if we look at the success rate of businesses modelled on the concept of franchise, about ninety percent of them succeed.
One of the main reasons for such higher success rate in comparison to start-up businesses is because they are modelled on a business concept that has already been tried and tested. Majority of the franchise businesses also have the advantage of the brand image of the parent firm. As a result of that, they do not have to go through struggle during the initial years, which are full of problems of insufficient or uneven cash flow; a situation experienced by most of the start-up businesses. They have been found to be running a profitable business right from the first year of operation. In fact, there is a huge demand of franchisees, as franchisors are often on the lookout for them to help them expand the size of their business. Franchise businesses save a lot of money as they do not have to spend on building a brand image, finding the potential customers etc. They also save substantially on marketing efforts.
It is not surprising, in view of their higher profitability in comparison to start-up businesses, that getting commercial mortgage for franchise is much easier compared to getting commercial mortgage for a new start-up business. Generally, loans are available for up to eighty percent of the purchase price or sometimes even more depending on the brand image of the parent firm. However, it is also important to keep in mind that even though the investment risks may be lower in a franchise operation because of association with an established business, the investor loses significant control over the business because of the need to fulfil various contractual obligations. Commercial mortgages for franchises are available for both making an initial down payment, if one is purchasing an existing outlet, or if one is developing his own facilities and entering into a franchise agreement with the parent firm.
