Best funding options before starting a franchise business in India

on May 28, 2024 | 3607 views

Written By: Nikita Janiya

It's undeniable to be your boss and have a successful franchise in India. Moreover, franchises offer a proven business model, brand recognition, and ongoing support from franchisors. But before you embark on this exciting journey, it is important to get the money you need.

This blog explores the best financing options available for aspiring franchise owners in India (2024). Also, we will analyze the details of each option, providing you with the knowledge to make informed decisions to fund your franchise dream.

Why Franchises? The Franchise Boom in India

The Indian franchise market is booming, with factors such as:

  • Increased demand: Consumers are increasingly looking for familiar as well as trusted brands, making franchises popular.
  • Reduced risk: Franchises provide a proven business model, reducing the risk associated with starting a business from scratch.
  • Strong support: Franchisors provide comprehensive training, business guidance, and also marketing support to their franchisees.
  • Economic advantage: Franchisees benefit from greater purchasing power as well as established brand recognition, reducing operating costs.

Franchising landscape in India: A profitable playing field for entrepreneurs

The Indian franchise industry is experiencing phenomenal growth driven by a combination of positive factors. Here’s a glimpse of the dynamic terrain:

  • Market size and growth: According to a report by Franchise India and FICC (Federation of Indian Chambers of Commerce and Industry), the Indian franchise market was worth ₹1.38 lakh crore (US$18.2 billion) by 2023, and estimated at a staggering ₹3.2 lakh crore (US$42.1 billion). ) before 2028. This represents an impressive annual growth rate (CAGR) of 17.8%.
  • By 2023, a study by ASSOCHAM (Associated Chambers of Commerce and Industry of India) suggests that established stores could achieve profit margins of 10% to 20%.
  • Also, the same study suggests that licensed jewelry stores, a popular franchise segment, could capture a significant share of the market, reaching 20-25% over the next decade
  • The Future Model Franchise has bright prospects in India
  • Regions: Franchises in various sectors are growing in India, including food and beverage, education, retail, beauty, wellness, and also healthcare. These changes cater to the evolving needs and aspirations of growing Indian consumers role.
  • E-Commerce Integration: The rise of e-commerce is changing franchising in India. Therefore, many established franchisors are adopting omnichannel strategies, combining online and offline shopping experiences to deliver a seamless customer journey.
  • Government Services: The government of India is actively promoting franchise development through various schemes. Moreover, schemes like the Franchise India Scheme provide financial support and incentives, making franchises a more attractive proposition for entrepreneurs.

Profitability of Franchise in India

Investing in a franchise business in India offers an attractive opportunity for aspiring entrepreneurs. Here’s why:

  • Reduced risk: Franchises offer a well-defined business model with proven operational plans, reducing the risk associated with starting the business from scratch
  • Brand recognition: Leverage the franchisor’s brand name and established reputation, and gain immediate customer recognition and trust.
  • Ongoing support: Franchises benefit from comprehensive training programs, business guidance, and marketing support provided by franchisees.
  • Increased economies of scale: Franchises gain greater purchasing power and reduced offers, reducing operating costs.
  • Accelerated growth potential: Franchises can leverage the experience and established marketing strategies developed by franchisees to achieve faster growth and profitability compared to independent businesses.

Funding your franchise dream

Turning your franchise dream into a reality requires careful financial planning. Here’s a comprehensive look at the best investment options available in India:

1. Personal savings and investments

Bootstrapping your franchise with personal savings and investments is an attractive option. This allows you to retain both ownership and control of your business. However, this approach requires a significant up-front investment and may not be feasible for all franchise opportunities.

Interest:

  • Full Ownership and Control: You have full decision-making power over business activities.
  • No debt burden: It avoids the burden of paying interest and repaying the loan.

Mistakes:

  • Limited capital: This may not be suitable for franchises with significant initial investment requirements.
  • Cutting costs: Using personal savings can affect your financial flexibility.

2. Loans from Banks & Financial Institutions

Banks and financial institutions offer a range of loan products tailored to specially concessionary businesses. These types of loans generally require a strong business plan, a good credit history, and creditworthiness.

Franchise loans:

Periodic Loan: Provide a lump sum payment with interest for a specified period of time.

Small Business Administration (SBA) loans (for U.S. citizens only): These government-backed loans offer competitive interest rates and flexible repayment terms, but are available to Indian citizens.

Line of Credit: Provides a revolving line of credit that can be used for ongoing business expenses.

Interest:

  • Access to larger capitals: It also enables funding of higher quality investment opportunities.
  • Spread debt: Provides manageable payments over a long period.

Mistakes:

  • Strict eligibility criteria: A strong credit history and credit score may be required to qualify for the loan.
  • Debt burden: Your interest payments can greatly affect your profitability.

3. Government policies and grants

The Government of India provides various schemes and grants to support entrepreneurs, including those involved in franchise businesses. These programs can offer financial assistance, tax benefits, and loan guarantees.

Popular systems:

  • Franchise India Scheme: It tries to encourage franchise development in India by providing support and incentives.
  • Cash Loan Program: Provides small loans to small businesses, including franchisees, with minimal documentation requirements.
  • Skill Development Initiative (SDI): Provides skill development training and financial assistance to aspiring entrepreneurs.

Interest:

  • Reducing the financial burden: Government grants and loan guarantees can significantly reduce financing costs.
  • Access to capital: Simplifying eligibility criteria compared to traditional bank loans.

Mistakes:

  • Resources Available: Programs may have limited funding or specific eligibility criteria.
  • Complex strategies: Navigating government policies can be time-consuming and difficult.

4. Angel Investment & Venture Capital

Angel investors are high-net-worth individuals who invest in promising startups as well as early-stage businesses. Institutional venture capitalists raise money from investors and invest in high-growth companies with great potential.

Interest:

  • Access to large capitals: Angel investors and VC firms can provide capital for high-growth franchise businesses.
  • Guidance and advice: Investors often provide valuable advice and guidance beyond just financial support.

Mistakes:

  • Equity dilution: You will need to give away some shares of your business to investors.
  • Strong selection criteria: Convincing investors requires a strong business model and also a scalable franchise concept.

5. Crowdfunding

Crowdfunding platforms can raise capital from a large pool of private investors. This forum presents various financing models, such as equity-based crowdfunding or wage-based crowdfunding.

Interest:

  • Democratic access to capital: Crowdfunding schemes can raise capital from private investors, democratizing access to capital beyond traditional channels This can be particularly useful for first-time franchisees who may not have a proven track record.
  • Community Building and Brand Awareness: A crowdfunding campaign can generate interest and also build a community around your franchise business that opens its doors as well. This can be a valuable tool for brand awareness and customer acquisition.
  • Flexible financing options: Crowdfunding platforms offer a variety of financing options, such as equity-based crowdfunding or bonus-based crowdfunding, so you can tailor your campaign to your specific needs.

Mistakes:

  • Compliance: Crowdfunding campaigns may be subject to specific regulations depending on the platform as well as the amount of money raised.
  • Success depends on effective marketing: A well-designed and widely publicised campaign is essential to attract investors to a crowdfunding platform. Therefore, this can require a great deal of time and marketing skills.
  • Limited availability of capital: While crowdfunding can be a great way to raise seed capital, the total amount of money raised may not be enough for more investment opportunities.
  • Choosing the right investment strategy

The best financing for your franchise business will depend on many factors, including:

  • Franchise Investment Cost: The total investment necessary to start and also operate your franchise.
  • Your financial situation: Personal savings available, credit and risk tolerance.
  • Franchise Business Model: Growth potential and profitability of a particular franchise opportunity.

Here are some more tips for choosing the right investment strategy:

  • Create a comprehensive business plan: A well-defined business plan will not only help you generate revenue but will also guide your franchise operations.
  • Consult with a Financial Advisor: Get professional advice to understand the financial implications of each type of investment and also choose the one that best aligns with your long-term goals.
  • Negotiate better loan terms: If you opt for a bank loan, negotiate competitive interest rates as well as flexible repayment terms.
  • Consider combining financing sources: Combining financing strategies can help you bridge the gap between your capital stock and also all necessary investments.

Conclusion

Starting a franchise business in India is an exciting prospect. By carefully considering your financing options and also choosing the one that best suits your needs, you can set yourself up for success. Remember, thorough research, a good budget, and professional guidance are critical to navigating the financial climate and turning your franchise dream into a reality.

Contact us at Franchisebazar to get started with any franchise.

Disclaimer: The brands mentioned in this blog are the recommendations provided by the author. FranchiseBAZAR does not claim to work with these brands / represent them / or are associated with them in any manner. Investors and prospective franchisees are to do their own due diligence before investing in any franchise business at their own risk and discretion. FranchiseBAZAR or its Directors disclaim any liability or risks arising out of any transactions that may take place due to the information provided in this blog.

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