How to Finance a Franchise
Getting money for a franchise is very similar to what you need to do to get money for a business startup.
The exception is if you are buying an existing franchise.
The good thing about buying a franchise is that a proven franchise has a much better chance of survival than a typical business startup. The odds are rather low for a non-franchised business, but this more than doubles when you are looking at a franchise with a history of success. Lenders are well aware of this, too.
How to Increase Your Ability to Get a Loan for a Franchise
Your chances of getting the loan for your franchise are greatly enhanced if you have some kind of management experience. It is even better if you are familiar with the processes involved in the day to day matters of your new franchise. For instance, you would be more likely to get a loan if you have worked in a restaurant and are looking to start either a fast food chain – or a restaurant franchise of some kind. This shows that you have a good idea of what is involved and know what it will take to get the business going and keep it going.
It is also necessary to have a thorough franchise business plan, too. It needs to be professional and cover all areas of the business – including your organization, your business marketing plan, your plan to pay back the loan and an exit plan. A business plan that is hastily thrown together will be spotted a mile away – and you will not get the loan you need.
Consider SBA Approved Franchise Businesses
Many companies give birth to franchise opportunities every year. Obviously, these new businesses have not been around long enough to have proved anything. The Government’s Small Business Association (SBA) has looked at many franchises and has approved a number of them. This approval means that they are already approved for an SBA loan, and as long as the buyer gets the same approval – a new business will soon be starting.
Talk to Family and Friends
It is quite possible that you may have a family member who would be interested in helping you get your new franchise going. Before you talk to them, however, you want to have your business plan ready in order to show that you are serious about starting a business that you want to succeed. By doing so, it will help others to have confidence in you and will encourage them to want to work with you.
If you lack in business experience, it is possible that an experienced family member could help you with it by lending some business credibility to your new business. There is the possibility that a relative may even give you a very low or even a no interest loan. Be sure to put any agreement in writing so that there are no misunderstandings later.
Find Out if the Franchisor Will Help You
Many franchisors will help new franchisees to get at least some of the money needed to get started. They will count on getting paid back from your profits. It also helps them look good and may be all the break you need to get started.
Seek Out Business Associations and Angel Investors
There are many groups out there that are just waiting for a proven business to come along that they can invest in.
All you need to do is to meet them at the right time and place. Investors often hold meetings for this purpose and if you are prepared and able to impress them with having thoroughly researched the market and know what you are going to do – and how – you can come away with the financing you need. Remember that they are experienced business people and they know when someone does not really know what they are doing. This type of investor will often want a high rate of return and it may take at last six months for them to decide.
If Buying an Existing Franchise, Talk to the Owner
When you buy an existing franchise, it is quite possible that the previous owner will be glad to provide owner financing for you. This is partly because of the need to reduce taxable income. By giving you a business loan for part of the amount and spreading the full amount over several years, it will qualify as a nice tax reduction for them.