So you're thinking about taking the leap to become a franchise owner. Good for you! This is a life-changing decision, and there is nothing as satisfying as owning your own business and meeting your own goals every day.
Starting a franchise is no small feat, and financing your business is the first of many big considerations. There are so many options and strategies for funding your franchise that it is difficult to know where to start. Use this guide as a springboard to help you make the decision of how to find the funding that you need to get started as a franchise owner.
Start from the Beginning
Before you can finance your business, you need to get your ducks in a row first. You cannot go to a bank or other lender to ask for money without some basic information, so arm yourself with organization and facts surrounding your financial situation.
You may have a basic understanding of your financial situation, but a lender doesn't so you need to present your finances to them in a way that makes sense. In addition, having a full understanding of your financial situation will prepare you for the lending process, how long it may take, and the likelihood that you will be approved.
Here are a few things to get together before you approach a lender:
- Net worth
- Assets and liabilities
- Credit score
- Liquid capital
- Job and work history
Make a Business Plan
Having a business plan before you go to a lender is another necessity. Upon reviewing your financial situation and your track record, the lender will want to know what their money is going toward. When you buy a car, the bank wants to know the year, make, and model so they know that their money is going somewhere worthwhile. Asking for a business loan is similar.
Your business plan should include detailed information of the franchise brand and its industry, projections, cost analyses, marketing strategies, goals, and more. There are a number of ways that you can receive professional help writing your business plan, including sources online. A thorough business plan can make all the difference in your loan application.
Traditional Bank Loans
Going to a bank or credit union-especially one where you have a history-is often the first place people look for funding their franchises. Your credit score is incredibly important when you are applying for a bank loan, as is your working capital.
In addition, according to the Wall Street Journal, banks like to invest in companies with well-known brand names. The brand name makes the bank feel confident in a franchisee's likelihood of success. In addition, many bank loans require collateral-like your home-and a substantial down payment, often as much as 20-30%.
SBA Loans
The Small Business Administration is a national organization funded by the federal government. Also known as the SBA, this organization aims to offer resources to small businesses to help them thrive; one such resource is the SBA loan.
SBA loans are still financed through a bank, but they are backed-and partially guaranteed-by the government, so banks feel more confident that they will get paid. Going the route of an SBA loan can sometimes ingratiate you to a bank that was unwilling to lend to you before; the government guarantee can make a big impact.
Home Mortgages
Many franchisees finance their investments through taking out another mortgage or a line of credit on their homes. A line of credit can be a smart way to finance your business because it is revolving, so you do not have to borrow in one lump sum. The obvious downside of financing with this method is that it puts your home on the line; if you cannot pay back the amount you borrowed, you may lose your home.
Pillar To Post Financing
Starting a franchise can be a big investment, but the finances do not have to keep you up at night. Funding for your franchise can come from a variety of sources, and knowing your options is the first step to getting started.
Check out our unique franchise opportunities for existing builders, tradesmen, and contractors who are looking for the chance to own their own businesses.