4 Tips For Financing a Franchise

One of the benefits of franchising is that there is a built-in support mechanism in place for you – a network of resources. Let’s say you have found the perfect business concept, 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.

This is a common for any small business startup and particularly in today’s lending environment, says Devin Conner of Franchise Marketing Systems, which provides full-service marketing and sales support consulting to clients in ALL industries. Some of his clients include: Total Gym, Blimpie, COSTCO, Allscripts, and Romeo’s Pizza.

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, adds Conner. With over a decade of experience in building and developing franchise brands, FMS structures and models various organizations for replication into new markets.

[Related: 10 Tips To Land A Small Business Bank Loan]

On the upside, buying a franchise that has proven itself and has examples to validate the financial model gives you a leg up in the financing process, says Conner.  Franchises have a higher rate of success, he explains. What’s more, many franchisors will help secure financing for qualified candidates to get started, and if they don’t provide the financing themselves, often they can recommend an independent firm that provides loans.

Here’s what Conner says that business owners, including would-be franchisees, should consider following when attempting to finance a small business or franchise:

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. One that shows the capability of the business and you. Basically, 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.