Franchise Opportunities Blog
Do’s and Don’ts of Securing Funding for a Franchise
By: Dallas Kerley, CFE (Chief Development Officer at Benetrends Financial)
Are you ready to own a franchise? If you’re like most prospective franchise owners, you’ll need to finance part or all of your franchise purchase. Ensuring you have an appropriately structured funding plan is often the key to long-term success and profitability. You’ll want to start off on the right track by following these key Do’s and Don’ts.
- Do consider all your funding options. Some of the more popular options include franchisor-specific financing programs, SBA loans, traditional loans, alternative lending, home equity financing – and you can even utilize your retirement funds without penalties through a ROBS (Rollover as business startup) structure!
- Do your homework and get your financial house in order. Both franchisors and lenders have certain minimum criteria when it comes to approving franchisee candidates. For example, some franchises require a minimum net worth and a certain amount in liquid assets. It would benefit you to do your financial homework in advance – for example: find out your credit score, calculate your net worth, and even update your resume.
- Do get pre-qualified. Why wouldn’t you want to find out how much funding you might pre-qualify for in advance? You do this with a home, why not a business? By getting pre-qualified through a funding provider, you can better identify which franchise concepts you can afford. Some pre-qualification programs are even offered free of charge!
- Do decide if you want to be a multi-unit owner. Some franchises will only accept you if you are willing to commit to 3 units. If you are interested in owning multiple units, then you’ll need to consider a multiple unit funding strategy from the start since how you fund your first unit affects your ability to fund future units.
- Don’t give up if you were rejected by a bank. Many candidates go to their local bank assuming they would be the best place to start for securing a loan. Then they get turned down once or multiple times and give up. In reality, it could just be the bank wasn’t interested in the concept you were pursuing. By utilizing a funding partner who works with multiple lenders (and knows which lenders prefer which concepts), you increase your chances of securing multiple loan offers and can choose the one with the best terms.
- Don’t underestimate how much funding you’ll need. One of the leading causes of small business failure is undercapitalization or insufficient funding. Most new business owners need more working capital than they anticipate, so making sure you have enough of a buffer to help with any unexpected operating costs is critical.
- Don’t assume all funding providers are the same. Not all funding partners are created equal, so do your homework to determine which one might be the best fit for you. Some things you may want to take into consideration include: how many years of experience they have in franchise funding, if they offer a variety of different funding options vs. just one, and if they have a 95% or greater loan approval success rating.
- Don’t wait until the last minute. If you don’t start early to shore up funding for your franchise you might lose out on your dream opportunity. Some funding options can take as little as 10 -15 business days (ROBS), while others such as SBA loans can take months.
To learn more about your franchise funding options available, visit http://franchise.org/benetrends-financial-supplier, or check out our funding options tool.