When you're buying a franchise you probably need money - most buyers do - and numerous lenders are lining up, especially at franchise expos, to be of service. One option that buyers often overlook is leasing, and it's worth your time to check out the possibilities.
If you're investing in a franchise that includes equipment, such as a POS system, or ovens and appliances for the kitchen, or if you need a truck, such as a van, you may be better off leasing than borrowing. Leasing equipment is the equivalent of "renting" the equipment, which means that you won't take money from your working capital to buy the equipment.
With a lease, you get to use the equipment and pay monthly, and at the end of the lease you can acquire the equipment, or upgrade it and roll the package into another lease.
Here are eight reasons why you should consider a lease when you start a franchise:
1. Hold on to your working capital.
Cash on hand is a huge advantage.
2. Claim a tax benefit.
Section 179 of the U.S. Internal Revenue Service Code allows you to write off a percentage of a monthly lease payment.
3. FICO requirements are usually lower for leasing.
There's less risk with a lease so credit rating requirements may be lower.
4. There are no prepayment penalties.
If it turns out you've got extra cash on hand, pay off the lease without a penalty.
5. You can choose the term.
24 to 60 months. This helps you keep the payment amount in line with your cash flow.
6. If you're expanding your business by opening a second unit, you may be able to use the first business to guarantee the lease and not have to sign a personal guarantee.
7. Securing a lease may be faster than securing a loan.
Especially, if you're leasing an equipment package or a vehicle that's recommended by a franchisor. Leasing companies like franchise deals.
8. Closing costs are minimal.
Almost always less than $500.
There are few disadvantages to a lease.
Of course, you still need to provide personal financial information and provide a variety of documents to the lender, but this is all the easier when you're buying a franchise. Savvy franchisors develop relationships with leasing companies to expedite franchise sales and development.
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You'll find more information about franchise financing in my Amazon best-seller: 12 Amazing Franchise Opportunities for 2015. Chapter 2 is titled Funding Your Franchise Acquisition.
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