• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint

Financing Alternatives

Although there are numerous real estate financing alternatives available today, we focus on some of the common forms from a franchising perspective.

Generally, financing for franchise development of commercial real estate takes the form of some kind of lease agreement. Understanding that each lease/buy decision requires specific analysis, in general, it is cheaper over the long term to own than to lease (if you plan to occupy a building over a long period of time). In the case of real estate, this is because developers include in the lease payments incremental profit for financing in addition to the base profit. So, if owning is on average cheaper, why do so many franchisees lease? The answer in two words is—leverage and cash flow. Most entrepreneurs, standalone or franchisee, are in need of cash to launch the business. And as the franchise becomes profitable, leasing provides the leverage required to grow at a much faster rate than would be possible if you purchased the real estate. In most cases the advantages of cash flow and leverage outweigh the additional financing expense of leasing.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint