The idea here is to get clear about what’s important to you, where exactly your passion lies, and what the point of the whole venture is. As a small business owner, it’s easy to get caught up in the minutiae of paying bills, writing the website copy, changing the website copy several dozen times, filling out tax forms, and so on. Don’t lose sight of the big picture.
If you’re like the majority of new startups, cash flow will be your primary concern. You can have the best business plan in the world, but it won’t be of any use if you don’t have the money to keep the lights on while you’re getting your feet on the ground. With this, it’s important to know what resources are available to make the initial growth period a lot easier.
Franchise fee: Most companies charge an upfront fee to start a franchise, paid in a lump sum or installments. The amount varies by company, but it’s typically tens of thousands of dollars and usually is not refundable once a franchisee is accepted. For example, Jamba Juice charges $25,000 per store, and Hilton Worldwide charges $75,000 to start a 150-room Hilton Garden Inn.
The lender will want to know how much funding you are seeking and how the loan proceeds will be used. Will the loan be for equipment or capital expenditures? Expansion or hiring? Increase in inventory? Enhanced sales and marketing efforts? New research and development of technology? New product development? Expansion into new facilities or territories?
More than anything, focus on consistent, repetitive branding. Many marketing professionals believe in the “rule of seven," which means people need to hear or see your message at least seven times before taking any action. In today’s world of constant connectivity, you must make sure you’re seen and heard. The most common reason that people do not buy your product is that they do not know about it yet.
In some instances the franchise itself will extend financing to you. Some companies, like 7- Eleven, actually build the store for new franchisees and lease the location to you, meaning you incur minimal startup costs and the transaction is handled directly between you and the franchisor. Others, like Subway may buy back locations from existing franchisees and then sell them to you as a new location, meaning you'll be handed an established store, sometimes with existing employees and inventory.
Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on Internet, digital media, and software companies, and he was the founder of several Internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of several books on startups and, co-author of Poker for Dummies and Mergers and Acquisitions of Privately Held Companies (Bloomberg), and a Wall Street Journal-bestselling book on small business. He was also a corporate and M&A partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, and venture capital. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn.
With the relatively low margins in the restaurant industry, many franchise owners are cash strapped and may even have a turbulent credit history. This is not a problem. National Business Capital considers the big picture so a low FICO score does not pose an immediate disqualification. In fact, the majority of our clients were denied franchise loans from traditional banks before contacting us. Know that National Business Capital offers franchise loans to small– medium- and large-sized businesses nationwide – and works with all types of businesses, no matter what their credit history. Our clients’ franchise financing needs are addressed quickly, efficiently and with a personal touch, regardless of their credit score. Even an open tax lien will not disqualify an applicant.
You should approach small-business-loan shopping just as you would shopping for a car, says Suzanne Darden, a business consultant at the Alabama Small Business Development Center. Once you determine which type of lender and financing vehicle are right for you, compare two or three similar options based on annual percentage rate (total borrowing cost) and terms. Of the loans you qualify for, choose the one with the lowest APR, as long as you are able to handle the loan’s regular payments.