In most cases, franchise owners provide technical support, equipment, and other necessary materials to their franchisees. Also, fellow franchisees can merge and share best practices, business approaches, and marketing strategies to colleagues whose business acumen and management skills are still developing. Simply put, there are a lot of good reasons why starting a business by buying a franchise will be a success.
Work with the franchisor’s preferred lenders: Often times, franchisors will partner with preferred lenders that they refer you to for financing. They may also have relationships with leasing companies that can lease you essential equipment for your franchise. When possible you should look at working with these lenders, because they’re familiar with your franchise brand and business model.
Equipment loans. Small businesses can buy equipment through an equipment loan. This typically requires a down payment of 20% of the purchase price of the equipment, and the loan is secured by the equipment. Interest on the loan is typically paid monthly and the principal is usually amortized over a two- to four-year period. The loans can be used to buy equipment, vehicles, and software. Loan amounts normally range from $5,000 to $500,000, and can accrue interest at either a fixed or variable rate. Equipment loans can also sometimes be structured as equipment leases.
Instead of spending hours playing with accounting software, dreaming up potential expense and income categories, and creating fancy reports with no data, spend that time generating revenue. As long as you record everything you do now, creating a more formal system later will be fairly easy. It will also be more fun, because then you'll have real data to enter.
Using the navigation buttons on the screen, you can go directly to the information you need. You also can pause and bookmark lessons so you can review information at a later time. Best of all, you can return to lessons you didn't need when you started your business but might need now; for example, if you decide to start a retirement plan or your business has grown enough that you want to hire employees-- all the information will be here when you need it. Throughout these lessons, you'll hear from small business owners like yourself, and we hope that by watching these owners learn how to meet their federal tax obligations, you'll learn how to meet yours as well. Best wishes on your new business.
Personal collateral requirements depend on the loan amount and the project. Does the coffee franchise involve commercial real estate or will the business be leasing a space? Collateral can be in different forms. Real estate equity is one form of collateral. Cash (in the form of a payment reserve or a CD) is another. We would need to know the specific project cost breakdown to know what might be possible. Rule of thumb would be to plan on 25% personal equity into the business and the bank will finance 75%. If it is preferred to avoid putting a lien on personal real estate, plan to have 18 months of loan payments to set aside in an escrow account at the bank as a payment reserve. The payment reserve can be released back to you after 2 years, as long as the business is showing good cash flow and making the loan payments without a problem. The other option is a CD held at the bank for the term of the loan. The CD is usually a smaller amount of funds than the payment reserve but is held for the entire term of the loan.
To get a good estimate of costs, the first thing we recommend doing is asking the franchisor for their Franchise Disclosure Document (FDD) early on in the process. It’s a good idea to have an accountant and lawyer review the FDD with you before you sign any paperwork or hand over any money. A franchisor is legally required to give you the FDD at least 14 days before you buy a franchise.
Starting a small business typically involves a lot of moving parts. In fact, time management can quickly become a challenge for entrepreneurs who are digging into the business start-up process for the first time. I compiled a list of 10 of the most important steps involved in starting a business and broke them down into easy-to-follow tutorials. Use this guide to make sure you're focusing your attention on the most important stages of starting a business and find out what you need to know so you can streamline your work for each of those steps.
Borrowers have multiple options for SBA-backed loans, including microloans with a six-year repayment term to allow new businesses to borrow up to $50,000; 7(a) loans that allow companies to borrow up to $5 million; and 504 loans, available for up to $5.5 million for smaller businesses with a net income under $5 million and a net worth below $15 million.
We love this lender for their sterling reputation, excellent customer support, and reasonable terms and rates. But again, you’ll need to already have an established franchise to qualify, as well as good credit. This loan also takes longer to apply for (and receive) compared to most other online franchise loans, and it can potentially take a couple months for the money to come through. You’ll need to submit all the documentation you’d need to get a traditional SBA loan, and it will be helpful if your franchise is already listed in the SBA Franchise Directory. Even though there are a few more hoops to jump through than with other alternative lenders, SmartBiz is still one of the quickest ways for a franchisee to get an SBA loan.
Small business credit cards. While some business owners may be wary of using them, small business credit cards can also act as short-term small business financing. Interest rates will vary depending on the credit card issuer, the amount available on the card, and the creditworthiness of the holder of the card. Many small business credit card issuers require the principal owner to be co-liable with the company. Issuers of small business credit cards include American Express, CapitalOne, Bank of America, and many others. Many credit cards offer promotional introductory rates of 0% for a short period of time (6-9 months). Cashback and rewards programs allow you to earn rewards from purchases on the credit card.
What You Need to Finance – Depending on what franchise you’re planning to buy, you may need to buy equipment, hire employees, purchase commercial real estate, and more. Craig Morgan, a managing attorney at Providence Law, says that some franchises, such as a car dealership, requires the purchase of commercial real estate. The things that you need to get started will affect what type of financing option is best for you.