Financing a franchise
Are you wondering what it takes financially to franchise or how to get funding? I did some research especially for you then!
Franchisors usually require you to get funding, unless you are a home-based business. The purpose of this funding is to put money down until the franchisor sees a profit. This money is for cash advancement as well as for franchise expenses. Lenders expect franchisees to have at least enough money to pay 30% of the expenses. The person you want to talk to more in depth about funding is your future franchisor. They have all that information in their UFOC. Franchisors sometimes have agreements with lenders or have their own financing agreement. Franchisors sometimes help carry the burden of the funding. This is called “debt financing”. The franchisor might also have hook-ups with companies who lease or finance out equipment needed for a franchise. Equipment can be 25-75% of your expenses.
These are just a few ways to get funding. You should always look at all your options. Asking family and friends if they know of any lenders is another way to find the most efficient way to get funding. You can also get funding from banks, however this is a risky thing because banks like collateral. Some people put their houses up for collateral and end up losing everything they have. You should never put more than you can handle losing up for collateral. If you do end up going with a bank loan, make sure you go in knowledgeable and looking like you are successful. This means having a financial business plan.
Another way you can get a loan is through the SBA (Small Business Administration). The SBA guarantees bank loans that will cover 90% of your loan because they limit their liability.
Last piece of advice is to make sure to go with a lender that specializes in franchise loans so that you will get all you need for your new business.
Hope that this is helpful!
October 11th, 2007 at 10:14 am
No offense, but I found this article contradicting itself. In the first line it says franchisors require you to obtain financing …but then it goes on to say the person to talk to is your franchisor about financing. Then it states how all the information for financing is in the UFOC. This article seems to be putting down lenders / loans and promoting the franchisor for financing yet the last line advises to obtain a lender that specializes in franchise financing. It seems to me the person who wrote this didnt do their homework. I don’t know of a UFOC that carries information about actual financing, although the UFOC may vaguely recommend a loan program type, it will not specifically list lenders or actual resourcs. It’s usually up to the franchisee to find financing options. However, a good franchisor may have specific resources handy, that specialize in franchise financing to recommend to you so yes, you should ask.
Chances are when a bank requires 30% down or more, they do not specialize in franchise financing.
I am an SBA franchise loan consultant and the lenders I work with always require only 20 - 25% down (depending on whether its brand new to franchising or has been around for a while with many units already up and running) for start-ups and 15-20% down for acquisitions (depending upon whether or not the seller will hold a sellers note). If there is real estate involved with the purchase, it could be as little as 10-13% down but ALL is dependent upon how you qualify for financing! this is why we pre-qualify franchisees at no cost or obligation.
Michele Slevin
http://www.theslevingroup.com