If you identify areas of weakness, you’ll need to make a plan for dealing with them. If you don’t have a head for figures, perhaps you could partner with someone who does. Or you could hire an accountant, or improve your own skills by checking out some of our super-simple accounting tutorials or doing other training. If you’re no good at designing websites, hire someone to do it for you.
You can arrange to borrow from ordinary commercial banks or credit unions for your new venture. According to the Small Business Administration (SBA), new franchise owners have a higher tendency to borrow from commercial banks than new business owners. Lenders prefer advancing cash to new franchises over other new businesses since they already have trust in the brand and business model of the business being funded.
A ROBS isn’t a loan, so there’s no debt or interest to pay back. This lets ROBS-financed franchises conserve more of their income, and as a result, they may be more successful in the long run. You do have to pay monthly administration fees when you do a ROBS, but compared to a loan the monthly fees are about 11x cheaper! This sets you up for a greater chance at long-term success than other financing methods.
Some franchisors report being approached by financial brokers--historically more interested in big deals--to put together large pools of money using SBA and private funds. These funds would be available to franchisees through the franchisors like a trust fund. Groups of smaller banks with funds to invest would contribute to the fund from all over the country.
The second part of the balance sheet is liabilities. Follow the same steps. List your current bills, all your charges, your home mortgage, auto loans, finance company loans and so on. Subtract your liabilities from your assets. Once you've worked up this sheet, take a good look at your credit rating. There are three common ingredients that all potential lenders look for in a credit rating: stability, income and track record.
Startups should also understand that the venture process can be very time consuming—just getting a meeting with a principal of a VC firm can take weeks; followed up with more meetings and conversations; followed by a presentation to all of the partners of the venture capital fund; followed by the issuance and negotiation of a term sheet, with continued due diligence; and finally the drafting and negotiation by lawyers on both sides of numerous legal documents to evidence the investment.
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.
If you prefer a little more guidance as you search out a franchise opportunity, consider hiring a consultant to locate the perfect opportunity. Consultants gather information on your financial situation and preferences and give you a few options that fit. However, make sure you’re working with a reputable franchise consultant. Ask questions about franchisees they’ve successfully helped and contact those franchisees as references.
The first thing you want to do before approaching any lender is determine what your net worth is. To do this, use a personal balance sheet to list both your assets (what you own) and liabilities (what you owe). Under assets, list all your holdings--cash on hand, checking accounts, savings accounts, real estate (current market value), automobiles (whether paid off or not), bonds, securities, insurance cash values and other assets--then total them up.
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Some franchising companies run their own franchise financing programs that help franchisees get in the door. Program offerings and requirements vary by franchisor, with such options as limited-term loans, reduced license fees or reduced royalties, and minority stake ownership by franchisors. Some companies, like Ace Hardware, offer financing to existing franchisees to open a new store or buy out a competitor.
In most cases, maintaining a good business credit report is enough to qualify. In addition, it instills confidence not only in the lender, but also in you. There is at least one SBA office in every state in America. If you contact them regarding the startup status of your business model and plan, you can get started on a government small business loan that will give you the financing to make your dreams a reality.