You Need a Business Plan

No financial institution of any sort will ever just hand you money without an outline of what you plan on doing with it. Business plans are the backbone of any successful business. Your franchisor should offer assistance in constructing a plan that will satisfy all of your lenders criteria and ensure that you get the funds.

Fill Out the Application Completely

Lenders love paperwork, it keeps them in the black and helps to assess which potential borrowers are bad risks. If you want to avoid being declined for your financing then you must complete their forms. Any information that is missing, no matter how trivial, could be the obstacle that stands between you and the franchise opportunity of your dreams.

Identify Weaknesses

Your lender is not naïve. They see hundreds of loan applications cross their desks each day. If you want to distinguish yourself from the rest then you will have to be realistic in the scope of your business. One thing that will be of vital importance will be to identify any potential weaknesses facing your business. Contrary to popular opinion this type of disclosure will not hurt your business. In fact covering the downside, will show your lender that you have taken a realistic view of your businesses and understand what can be improved upon.

Don’t Get Greedy

All too often people get carried away in the sums of money they seek to borrow. They overstate their expenses hoping to have some cushion for any unforeseen expenses that may arise. Although this may seem practical from the viewpoint of your lender it is a red flag. Your loan should cover what you need to run your business and not a penny more.

Tell Them How You’ll Pay Them Back

Financial institutions are happy to loan business start-ups capital, once they know how and when the money will return to the bank coffers. This is a key step that many tend to downplay as they may not fully grasp how they will pay the loan back. Sitting down with your expense sheet and extrapolating repayment dates will go a long way to earning your lender’s approval.

Relax

The loan process takes time. There will be meetings to discuss details of your business plan, loan application and credit history. After so much inquiry, you may start to feel like you’re living in a fish bowl. Your lender is going to go over your information with a fine toothed comb to make sure you are a suitable candidate for a loan. The process is tedious but well worth it for both of you, they don’t want to be stuck with a bad loan and you don’t want the headaches that come with dealing with collections agencies after you realize that you over borrowed. Have patience and be cooperative and you may hear your lender say, “You’re approved.”

Some franchises seek to make the financing process as simple as possible for new franchise owners. This can be done by providing financing to entrepreneurs who are seeking a franchise. This both attracts new franchise owners to them and gives the company the reassurance that the financing is not out of their control. The financing will not be pulled by someone else, ruining the deal for both parties. Instead, the financing is assured and more franchisees will be interested.

Some franchise companies will finance a part of the cost of the franchise of the entire cost. The terms of a franchisor loan will different from company to company. Be sure that you understand the terms before deciding on this type of financing. Some companies offer financing that has a balloon payment due after a few years. Others have delayed payment plans that allow you to get your business up and running before any payments are due.

If your franchise company doesn’t offer financing, the company may have a financing consultant who can tell you all of the other options for getting your own financing. If you’re unsure how to begin the process of looking for financing, ask about what kind of assistance franchisees are given in finding financial assistance.

Another option is to go directly to a bank that you have a history with and asking them about the business financing options available. A business loan requires you to have a good credit rating and to have a solid business plan to present. You may need to hire a business plan writer to create a thorough look at the franchise you want to finance and how it will realistically perform over the next few years.

Though the recession has made banks more reluctant to loan money, even to start franchises, it is still possible to get a substantial business loan if you have excellent credit and experience running a business. A plan that includes a look at the local market, an analysis of the past success of the business type that you want to own and other factors can help a loan committee to see that your business needs are worthy of a loan and that the bank will not be taking an unnecessary risk by lending it to you.

Once your financing is together, you can begin the process of buying a franchise and beginning your training. Most franchises come with some financial training to help you to keep the books and maximize your business profits. This enables you to stay on top of your financing payments as agreed.

One way to get financing for a low cost franchise is to get a home equity loan or line of credit. This can be done in smaller amounts than most business loans, and it provides one important benefit to homeowners. The interest on a home equity loan is tax deductible. This gives you more money at the end of the year that can be put back into your business if you choose. This does present some risk, so many homeowners choose not to use their home as collateral. However, if the amount you need is small, too small for a business loan, a home equity loan may simply provide you with a quick way to get the money together without presenting much risk to your equity.

Credit cards can often be used to finance a low cost franchise by supplying the borrower with either the full amount of the franchise costs or by supplementing the money you already have in order to make up whatever is lacking. Most credit cards can be used to obtain a cash advance on the credit line, and this can be used to supplement the money you are using to finance your franchise.

Some franchises offer their own financing programs, even if the franchise itself is a low-cost opportunity. This is increasingly becoming an option as the recession has made it more difficult to get bank loans for financing. A franchise opportunity that offers financing to new owners will be more attractive to potential franchise owners, giving companies a vested interest in creating these programs.

Some new business owners finance their businesses by cashing out their 401(k) or an IRA. Depending on your age, you may have to pay penalties to use this money, but access to it is often easier than going through a bank for financing. Other ways to raise money for franchise expenses include selling something to pay for the fees, such as trading in an expensive car for a less expensive one, selling a timeshare or otherwise raising funds from your existing assets.

If you don’t want to access any of these financing methods and your chosen franchise company doesn’t offer any financing, there is also the option of taking on a partner or seeking out venture capital companies. Choosing to take on a partner may mean that your profits are cut in half, but it can also mean less risk and quick financing for your low cost franchise. Venture capitalists have the same advantages and disadvantages, though they generally ask little in the way of actual participation in the business. From all of these methods, virtually any potential franchise owner can find the best method of financing that dream.

Creating brand recognition is one of the largest costs for any new business. Creating that recognition, even in a small local area, can be prohibitively expensive for many new business owners. During a recession, coming up with enough funds to create a name for the business and find out who may be interested in patronizing the business can be even more difficult. When you start a franchise business, that work has already been done. The business has created name recognition and usually continues with its marketing efforts in order to help its franchise owners.

Getting funds together for a new and unproven business concept can make it almost impossible to get a business loan or other financing. During a recession, this is doubly true. Banks are tighter with their money during bad economic times, and they don’t want to risk giving a loan or line of credit to fund something that may not have a market. Franchises, however, have already proven that they have an interested market. They already have followers and there is a history of success with the concept.

In a recession, not many people can afford to go without an income for an extended period of time while they learn how their new business works. A start-up needs time to find its target market as well as time for the business owner to figure out how to make it its most profitable. That time can ruin a businessperson who is not prepared to go long term without earning an income. Franchises come with training that teaches the franchise owner exactly how to run the business and how to keep it at its peak performance. When training is over, the owner is prepared to begin and can start making a profit right away.

During the recession, your money is probably foremost on your mind. You probably want less risk than before and want a way of ensuring yourself a stream of income without having to wait a few years to see a profit. That’s what franchises have to offer to entrepreneurs. They can help you to survive the recession while still taking part in your entrepreneurial dreams. That’s a rare combination outside the franchise world, but it can be a reality for someone who dreams big and finds success through a franchise. You can avoid those new-business mistakes while still starting up your own new venture.