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Accounting

5 Tips on Financing a Small Business Franchise

Imagine this: You've found the perfect business idea, one that seems to add up from every angle and couldn't be better for you and your future plans. The only problem is that you don't have the capital to open the doors.

Jun. 28, 2015

Franchising 1 559021ed94fe2

Imagine this:  You’ve found the perfect business idea, one that seems to add up from every angle and couldn’t be better for you and your future plans.  The only problem is that you don’t have the capital to open the doors.  Well, unfortunately this is a rather significant problem for a small business startup … particularly in today’s lending environment.

 
This is one of the highest risk categories in lending practices, so now is not the time to be crossing your fingers and just “Hoping” that the money will come to you.  The 90’s are gone…it doesn’t work that way anymore.
  1. Don’t “Hope”….”Show” the bank how you will take their money and turn it into a profitable business venture.  Picture the bank like any other person you would try to borrow money from…they are nervous….they need to trust you and most importantly they need to believe that you will pay them back!
  2. Don’t limit your sources.  Banks aren’t the only options out there for a small business startup loan.  Private investor groups exist, but generally speaking won’t deal with you unless you are looking for over $2 million in funding.  “Hard Money Loans” exist, but you better have a quick ramp up to cover the cost of financing.  401k Rollovers are also a legitimate option for those who have funds in their “retirement” accounts.
  3. Develop a great business plan that shows the capability of the business and YOU!  You should plan on selling yourself as much, if not more than the business you are looking to fund.  What makes you special, talented, intelligent and proven that will lend credibility? 
  4. You need to have the PERSONAL balance sheet to get a loan.  Plan on needing to have a credit score of at least 680 and a net worth of 1.5 times what you are asking for in the small business loan.  You should also have 30% of the loan to put up in collateral to the lender in this market. 
  5. Consider a franchise…buying a franchise that has proven itself and has examples to validate the financial model gives you a leg up in the financing process.  Franchises have a higher rate of success….and isn’t that what it’s all about?
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With an expert staff that has over a decade of experience in building and developing franchise brands, Franchise Marketing Systems (FMS) continues to pride itself on structuring and modeling various organizations appropriately for replication into new markets. FMS has plays a huge part in helping companies build a franchise or license model that is attractive to potential buyers and investors. To date, the most effective and successful franchise system launches are done with this type of support and guidance provided to businesses.