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Funding Your Franchise

Guest post by: Anne Barr

Article Overview: So you’ve found the perfect franchise. How do you pay for it? You will need enough money to pay for the franchise fee, start up costs, and at least six months of your living expenses. This article give an overview of the different options to fund your franchise.

Funding Your Franchise

So you’ve found the perfect franchise. How do you pay for it?

You will need enough money to pay for the franchise fee, start up costs, and at least six months of your living expenses.

Obviously, the fastest and easiest option is to pay with cash.

If you are like the majority of franchise buyers, you either do not have enough money or you don’t have enough money that you are willing to risk on this business venture. So you are going to need some sort of financial assistance. There are a couple of options. If you own your home and have a good amount of equity, you can get a home equity loan to help fund your franchise. This is usually a fairly simple and straight forward process. If that’s not an option, there are ways to use your 401K to fund your franchise endeavor without penalties. This is also a pretty simple process if you know what you are doing. Luckily, there are several companies that will walk you through the entire process.

If none of those options work, you can always apply for an SBA loan. In today’s credit market, it is not easy to get an SBA loan. Banks are requiring at least 25% down, excellent credit scores (700+) with no bankruptcies, collateral, and experience. If you go this route, be prepared for a long and tedious process. The bank is going to closely scrutinize the franchise system you are purchasing. If the franchise has good brand recognition and a good success rate, the likelihood of being approved for an SBA loan greatly increases!

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Article Tags: franchise fee, franchise funding, franchise opportunity



Related Forum Posts
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Why pay a Consultant? - Consultants can bring you into contact with a Funding Source but how do you tell whether a consultant will be successful beforehand? Professional Consultants ALWAYS ask for some kind of retainer so that they can feel they're not being used by a 'chancer'. However, when raising funding, a real consultant will offer to REFUND THAT RETAINER out of the % BROKERAGE he charges, payable once he finds your Funding Source, and payable from initial disbursements. Retainers only cover part of the costs that a consultant has to pay while working on behalf of the Client. Their real wages come from the agreed upon Brokerage, received when they are successful on the Client's behalf.
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.


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