Top Tips for Financing a Franchise Investment
Buying into an established brand through a franchising agreement is a great way to jump start your business, but it does take a lot of up front working capital to get the momentum you need. You gain the benefits of an established brand with a customer base and ready-made marketing plan, as well as clear supply lines and a business model that’s been proven to work out of the box, though, and that’s worth paying for. So how do you raise the capital to buy into a franchise and establish your operation? For many new owners, the answer is a financing plan that’s built for this business model.
Loans for New Franchisees
Financing for business acquisitions already exists for every business model, but where financing that is built for the franchisees buying in to start a new location differs is its flexibility. Like acquisition loans, terms tend to be fairly long and interest is usually fixed, controlling the overhead cost of the loan and allowing you to focus on growth. The difference is that you get working capital, so you can not only buy the license you need to start up, but also equipment, supplies, and initial advertising. For those choosing to lease facilities, your initial lease payments can even be covered by this flexible working capital. The key is finding a specialized franchise financing program and preparing a great application package.
Check Out Your Parent Company’s Resources
Most businesses that operate on this model offer some form of financing for new licensees, so it’s always a good idea to review those options. They give you something to use as a baseline comparison while shopping other options, which helps you decide if other financing options are going to be a good deal. You might even surprise yourself by finding out you can use a combination of in-house financing and private lenders.
Prepare a Great Business Plan
Like most business loans, long-term franchisee loans with amortizing payments usually require a business plan. The plan should disclose the key players in your operation, including your management candidates if you have selected them. It’s also going to need to include a rundown of the equipment and supplies to be purchased, projections of income for the startup period, and other details that demonstrate a clear understanding of the undertaking. Since you are starting up a business instead of expanding an existing one, you won’t have a lot of business assets to disclose yet, but preparing a solid set of projections using franchise-wide data and demonstrating your ability to make the cash portion of the investment necessary for the financing package you choose will be the keys to getting approved.