Starting a new business can be undeniably rewarding, yet challenging. Rising interest rates and the threat of recession add to the complexity, making traditional investment options feel uncertain. However, there is a misconception that rising rates are a deterrent for franchise investment. Contrary to popular belief, franchises, especially in specific sectors, can offer resilient and profitable avenues even in challenging financial climates.
Here are some reasons why franchises can be a good investment during challenging financial times.
4 Reasons Why Franchises Can Be Good Investments for Rising Interest Rates
Understanding franchise business investment dynamics during rising interest rates is key to making informed decisions. Let's explore some of the core factors that position franchises as potentially advantageous investments in such an economic environment.
#1. Access to a Support Network
Franchises offer a unique opportunity for a solid foundation provided by established franchisors. They can bring to the table well-tested business models, comprehensive operational support, and the power of a recognizable brand. These elements can create a safety net for new franchise owners, epitomizing the franchise community's mantra: 'In business for yourself but not by yourself.' This support is not just a startup advantage—it's an ongoing partnership. Franchisees receive guidance and assistance throughout their entrepreneurial journey, which is crucial during market shifts and economic changes.
Entering the franchise world also opens doors to a network of experienced business owners local to you and nationwide. This community acts as a forum for sharing insights and advice, offering new franchisees a wealth of knowledge gained through firsthand experiences. It's a space where challenges are discussed and solutions are formed collaboratively, enhancing the ability to navigate various business scenarios, including those influenced by rising interest rates. Picking a well-known franchise with a solid history of success can give you a better chance to run a business. All of this helps increase your potential, which can position you well.
#2. Recession Resilient Industries
Investing in a recession-resilient franchise that has a better chance to withstand tough times is a savvy approach to steer through the shaky waters of economic slumps. The recent global health crisis has highlighted how some business sectors can withstand economic hardships better than others. In the face of economic dips, entrepreneurs are drawn to industries that shine with consistency, such as essential service businesses that can thrive even when money is tight.
A standout example is the home services industry. Many home services are considered essential by homeowners and remain largely unaffected despite broader economic swings, which generally curb discretionary consumer spending.
And since higher rates typically lead to fewer moves and more extended stays in one place, homeowners continue relying on professionals to maintain and improve their homes. This helps keep businesses in areas like plumbing, HVAC, and electrical repair busier and potentially more financially sound.
To that point, while some franchise sectors saw an average decline of 2.6% during the pandemic's worst, the commercial and residential services industry experienced a notable expansion, averaging 8.8% growth. This stark contrast highlights the potential of reliability and growth of investing in home services franchises, even in challenging economic times.
#3. Investment Diversification
Diversifying your investment portfolio is a crucial strategy for mitigating risk, especially when considering investments for rising interest rates. This approach can help diversify your finances from the volatility of stock markets and broader economic shifts.
Franchises in less interest rate-sensitive industries, like home services, exemplify this concept. They often encompass a variety of services, such as plumbing, electrical, and HVAC. This internal diversification not only spreads risk but also caters to diverse consumer needs, making these franchises a robust component in an investment strategy tailored for rising interest rates.
#4. Financing Options Amidst Rising Interest Rates
Figuring out the best financing options can be tricky in a high-interest-rate environment and is a common concern for entrepreneurs. Franchise investments, however, often present a more favorable picture to lenders. Compared to solo-preneur ventures, generally viewed as higher-risk, franchises with a history of success are more likely to be perceived positively. This makes obtaining financing for a franchise a more achievable prospect, even with rising interest rates.
In the realm of franchises, some of those in the home service industry stand out as lower-cost investment opportunities. These franchises can sometimes be home-based, avoiding the substantial expenses associated with land or building purchases. Here, the advantage is reduced initial outlay and quick entry into a proven business model. This approach mitigates many costly mistakes early-stage businesses face, setting entrepreneurs on a swift path to success. This can help make a case to lenders for the best available rates and make home service franchises particularly appealing for those seeking investment diversification in high-interest environments.
Home Services: Where To Invest When Interest Rates Are Rising
Facing the uncertainty of a potential recession can be intimidating, but it shouldn't halt your pursuit of entrepreneurial goals or your work in researching how to invest when interest rates are rising. While no business is entirely recession-proof, home services franchises are known for the opportunity for resilience in challenging economic climates, increasing ownership's ROI potential and making franchises compelling investments for rising interest rates.
Neighborly®'s family of home service brands can provide a lower-risk avenue to business ownership during uncertain times. If you're evaluating which home service franchise aligns with your investment goals, consider taking our quiz. This tool is tailored to direct you toward a franchise opportunity that aligns with your financial aspirations and empowers you to thrive.