In our last blog edition, we spoke a little bit about a fact we’re quite proud of. For over three decades, FranNet has employed qualified representatives who both live and work in the communities they represent. Many have franchise and business ownership records of their own. That’s why they’re in such a unique position to help our candidates as they consider an entrepreneurial journey. And one of the most common topics about franchise ownership is financing. These prospective franchisees need to know their financing options and the FranNet representatives on the ground in their area can give advantageous advice.
We want it to be known that we visit with franchise candidates from all walks of life. Some are quite well off financially, having saved an investment nest egg for potential business ownership. Others have investment money, but need an additional boost to secure a franchise concept of their liking. And still others need a more well-rounded amount to borrow in order to get their franchise operation off the ground. Not only are we experts when it comes to financing options, we can also explain specific programs designed to benefit those who meet certain requirements. Veterans, for instance. Just ask.
When it comes to the basics of franchise finance, here are a couple of key avenues you’ll likely hear about.
First and foremost, many franchisors (the brands themselves) may offer franchise finance terms. This will be spelled out in detail in your FDD (Franchise Disclosure Document). In effect, this reflects the same type of lending mechanism as some large auto manufacturers offer for loans (think GMAC).
If you intend to self-fund the franchise purchase, there are routes you can take with both home equity lines and 401k accounts. There are specific rules and guidelines for each and it is vital to understand every detail involved. Do your due diligence.
Many a budding entrepreneur has turned to family and friends to utilize as investors. This crowd-funded approach is gaining in popularity and it’s likely your repayment terms would be more favorable than traditional lending avenues.
There’s also the good old-fashioned bank. We encourage our franchisee candidates to reach out to their primary bank and lending institutions for further information. If nothing else, your local bank’s potential loan terms can serve as a trusty yardstick for the alternate financing options.
You should also look into what the Small Business Administration (SBA) can do to help you fund a franchise, as specific programs are in place. Keep in mind that the SBA does not actually make the loan, but rather guarantees a large percentage. In 2009, Congress passed a law allowing the SBA to raise its loan guarantees to as much as 90 percent, while eliminating some additional fees. To check on this program, we advise a visit to www.sba.gov.
Back to the advantage of having a FranNet representative who both lives and works in your area. Because some states and cities do offer job creation programs and other economic incentives which encourage new business development. They want you to set up shop in their area and thus may provide beneficial terms on tax credits or loans. Have your FranNet representative reach out to the proper authorities to see what programs exist and if you qualify.
Hopefully, this edition of FranNet’s blog will serve as a primer on franchise finance. It shouldn’t be viewed as a daunting task, but rather a conquerable challenge in your quest to become your own boss. The best part? We’ll help you through your financing options every step of the way.
Let’s chat! There’s a local FranNet consultant right in your market who knows that market inside and out – knows the personality of the market – knows the competitive landscape. FranNet has a great track record of assisting individuals on their path to entrepreneurship, and one of our franchise experts would love to provide you with guidance free of charge. Sound like something you might be interested in? Get started here and find your local consultant right now!