Enterprise financing methods, that is, enterprise financing channels. It can be divided into two categories: debt financing and equity financing.
Debt financing includes bank loans, the issuance of bonds and notes payable, accounts payable, etc., the latter mainly refers to equity financing. Debt financing constitutes a liability, the enterprise has to repay the agreed principal and interest on schedule, the creditor is generally not involved in the enterprise's business decisions, and has no decision-making power over the use of funds.
Debt financing can be categorized into working capital financing and capital expenditure financing, the advantage of which is to borrow funds and repay them to the creditor at the appropriate time when they have the ability to repay. The main sources of debt financing are friends, banks and other financial institutions. Working capital liability financing (current assets - current liabilities), which generally involves borrowing short-term liabilities and purchasing inventory to pay accounts payable, is often appropriate and necessary if the franchisor must achieve higher sales and profits by increasing inventory and giving employees raises.
Working capital debt financing is typically obtained from bank loans, commercial credit unions, or credit unions, and it is short-term. Capital expenditure financing (land, buildings, equipment and fixed assets), is obtained by contracting long-term debt. Capital expenditure financing is particularly important when a franchised business initiates market expansion or reorganization. The primary sources of capital expenditure financing are commercial banks, venture capital, manufacturers, life insurance companies and other commercial lenders. Debt financing is usually available in the form of bank loans, equity financing, debtā financing and finance leases. More suitable for debt financing for current domestic concessionaires are bank term (pledge) loans and finance leases. The franchisor can obtain the funds needed to improve operations or expand the market depending on the type and requirements.
1. Bank term loans
Banks are the most important financing channel for franchised enterprises. According to the nature of the funds, they can be divided into three categories: working capital loans, fixed asset loans and specialized loans. Specialized loans usually have a specific purpose, and their lending rates are generally more favorable. The loans are divided into credit loans, secured loans and bill discounting. Among these, term (pledge) loans are a formal contract between a bank and a franchisee, agreeing that the franchisee will utilize a certain amount of capital (principal) for a specific period of time (the term of the loan) and pay a set percentage of interest. Such loans generally require partial monthly repayment of principal and interest or allow payments to be made on a loan repayment basis, whereby only a portion of the principal is repaid over the life of the loan and a larger sum is repaid at maturity. Typically, this type of loan generally requires collateral (land, construction real estate, equipment, or other fixed assets), which will be seized by the bank if the franchisee fails to make the required loan repayments.
2. Financial Leasing
Financial leasing, also known as financial leasing, is a new mode of operation for product marketing and asset management, as well as a form of asset-based capital financing. It is a kind of loan relationship between the ownership and the right to use, that is, the lessor (owner) in a certain period of time will lease the leased goods to the lessee (user) use, the lessee according to the provisions of the lease agreement to pay a certain amount of leasing fee in installments, and the expiry of the leased goods to obtain the ownership of the leased goods. Financial leasing is actually a form of financing to achieve the purpose of financing. For small and medium-sized franchise enterprises, financial leasing is
the combination of financing and financing, trade, finance, leasing as a whole, the operation is more flexible, simple, and improve the efficiency of the enterprise's financing is a very effective way of financing. Often used in operating leases, financial leases or installment payments, sale and leaseback.
Equity financing is to sell the ownership of the company to other investors, that is, the owner's interest in exchange for funds. This would involve assigning responsibility for the operation and management of the company among the partners, owners and investors. Equity financing allows the founders of a business not to have to pay back other investors in cash, but to share the profits of the business with them and assume responsibility for its management, with the investors receiving a share of the profits of the business in the form of dividends. The main sources of equity capital are own capital, friends and relatives, or venture capital firms. In order to improve operations or expand, the franchisor can utilize a variety of equity financing methods to obtain the required capital.
1. Venture Capital
When a growing franchisee needs additional capital to make his business plan successful, but lacks collateral or the ability and credentials to make principal and interest payments, or when the franchisee wants to obtain traditional debt financing from a commercial bank and the franchisee needs to prove that he can make the principal and interest payments on his own, the franchisee may seriously consider venture capital as a One of the sources of financing for the company. The reality that a franchisor needs to face is that it may be more difficult for the franchisor to obtain debt financing because the franchisor needs capital to cover its "soft costs" - including personnel and marketing costs. However, as franchising has become a successful business model for domestic enterprises, more and more private investors and venture capital organizations are willing to provide capital to franchisors. For example, domestic hotpot restaurant chain brand Little Sheep and budget hotel chain brand Ruijia have just received funding from venture capital organizations in 2006.
But venture funds are also very demanding, and they are always on the lookout for entrepreneurs who are bold, have a positive life and business style, and are enterprising.
In addition, venture funds often require a certain amount of equity in the franchised business, participation on the board of directors, and a detailed report from the franchisor setting out the business's growth plans, financial planning, product features, and management's capabilities. The equity structure also requires that the management of the enterprise must invest a certain percentage of capital, usually around 25#M~T^02, to bind the management's commitment to the enterprise.
2. Partnership
This is one of the common channels used by franchisors to raise capital in the early stages of development. A prerequisite for the formation of a partnership is that the partners are willing to work together and agree to put up a certain amount of initial capital for anticipated expenses. When the property of the partnership is insufficient to satisfy debts as they fall due, each partner shall be liable, but unlimitedly jointly and severally, and each partner shall have equal rights to carry out the affairs of the partnership. In this form of partnership, according to the Partnership Law, the partnership can only be established as an unlimited partnership, and all partners must bear unlimited liability for the partnership, so that all partners can only be jointly and severally liable for the debts of the partnership as general partners, unless they do not invest or intervene in other economic activities. According to the regulations, business decisions are subject to the consent of all partners. Any general partner can become a franchisee of the franchise system. All partners are fully liable for all debts of the business and undertake to actively participate in the management of the business and to pay taxes on the profits earned, respectively.
Another type of partnership is the limited partnership. The limited partners are liable for the debts of the business only to the extent of their investment or to the extent of their agreed risks, and have the benefit of sharing in the profits of the business and enjoying personal tax advantages. If the limited partner does participate in the management of the business, the partner converts to a general partner.