5 Tips for Getting Financing for a Franchise
In many ways, franchises are the perfect investment for aspiring small business owners. The infrastructure and established brand recognition of a franchise cover much of the difficult work entrepreneurs do at the beginning of their careers. It is understandable, then, that franchisors have high expectations of their franchisees, and one of them is securing financing. Here are the biggest ways potential franchise owners can make themselves more appealing to lenders.
Know the Franchise Inside and Out
If you were starting your own business from the ground up, you would know every detail about your products, processes, strategies, and branding. If you are seeking financing to buy a franchise, you should have the same level of understanding and preparation when you meet with potential lenders. If you demonstrate intimate knowledge of the overall company, financers will see that you are dedicated and committed, which can only help your efforts.
Pore Over the Franchise Disclosure Document
A Franchise Disclosure Document (or FDD) is the key for prospective franchisees and lenders alike to understand the financial expectations that come with a franchise agreement. It is written to educate and provides a wealth of information. This usually includes estimated startup costs and operating expenses as a start. The FDD may also include invaluable resources such as contact information for other owners who can answer questions and provide support. It will also likely outline the company’s marketing strategy and supply branding tools and style guides. Beyond all of that, it is important for lenders because it will also disclose any litigation that the company may be involved in. The more intelligently you can reference this information, the better.
Build a Detailed Business Plan
Even though franchisors lay out much of the groundwork for potential owners, they need to understand the landscape of their market and layout a plan to combat competitors and grow market share. Providing a detailed business plan to financers is crucial to securing funds.
Improve Your Credit Score
Improving a credit score takes time, so efforts to make that happen should be one of the first things franchisees undertake. By simply paying bills on time or early, and making payments higher than the minimum, a person hoping to own a franchise can make big credit rating strides within a year.
Lastly, cash is king. Lenders will expect a franchisee to be able to put forth a down payment of 10-20% of the business’ value.
The security and structure of a franchise make it a great business opportunity. Come prepared, and lenders will take you seriously!