HOW AND WHERE TO GET
MONEY FOR A FRANCHISE IDEA
How often have you thumbed through a business opportunity magazine, noticed a franchise
opportunity advertisement, and felt you'd really like to get in on that -- if only you had
the money! If you're like most who are seeking greater opportunity and wealth, this
probably happens with you more often than you care to admit. When the average person
considers a franchise opportunity or comes up with a similar idea of his own, the problems
of startup capital may seem formidable. But in reality, they may not be
insurmountable.
Just about anyone with a good credit record and a modest degree of business sense can
get the capital he or she needs--whenever it's needed. The secret is in knowing how to put
together a proper proposal, and how and when to present it to the right person. These are
the "howto" instructions we're going to give you in this report.
The first thing you're going to need is a complete business plan. This is a complete
and detailed description of exactly how you intend to operate the proposed business. Your
business plan should detail precisely the product or products you plan to sell; how you're
going to produce or manufacture the product; your costs (inventory costs if you're
purchasing them from a supplier); who is going to sell those products for you; how they're
going to be sold; the attendant costs; when you expect to recoup your initial investment;
your plans for growth or expansion; and the total dollar amount you're going to need to
make it all work according to your plan. Your business plan must be detailed--complete
with projected income and expense figures--through at least the first three years of
business.
Assuming you have your business plan all worked out, put together, and ready for
presentation with your request for capital, let's talk about your capitalization proposal.
First, keep in mind that whenever you ask somebody for money, whether it's for a small
personal loan or a large amount to finance a business, you're involved in a selling
situation. You have to prepare a "sales presentation" just as if you were
getting ready to sell an automobile or refrigerator. This sales presentation must present
all the facts and figures, and be prepared to meet all the questions and possible
objections of the prospective lender with answers or explanations. You must
"package" the presentation to the lender as impressively as you would yourself
for a meeting with the president of IBM or General Motors.
The larger the amount of money you are seeking to borrow, the more
"intheknow" will be the people from whom you wish to borrow.
Therefore, the more detailed and organized your proposal, the more likely you are to walk
out of the meeting satisfied with the lender's response. Formulating such a package
shouldn't cause you too much worry, however, because you can hire a CPA to help you put it
together properly once you've got the facts and have a business plan from which he can
work. You must be prepared for any possible objections with which the lender might
confront you. Have an answer prepared in advance so that he realizes that you have
carefully studied your business and that you will be prepared for any emergency that
arises.
Look at it this way: The more money you request for your business, the more your
lenders or prospective investors are going to want to know about you, your planning, and
your business. They want to be impressed with the fact that you've done your homework.
They want to see that you've researched everything and documented your facts and figures.
The lenders wants to be assured by your presentation that investing in your business will
make money for them. It's that simple. Unless you can instill confidence in them with your
business plan and loan or investment proposal, they're just not going to give much
positive thought to your request for capitalization.
You'll need a balance sheet describing your net worth--the value of what you own
compared to the amount of money you owe. You'll also have to prove your stability and
moneymanagement talents relative to how successful you've been in paying off past
obligations. If you have had credit problems in the past, get them "cleaned up"
or at least explained on your file at your local credit bureau office. Under the law,
credit bureaus are required to give you all the information they have about you in their
files, and it's your right to correct any errors or enter explanations regarding negative
reports on your credit. Do this without fail because prospective lenders or investors will
definitely check your credit history.
Now you're ready to start looking for lenders or investors. Almost all franchisors
offer help in setting up with one of their franchises. Most will go out of their way to
assist you in getting the financing you need. Some will lend you the entire amount, with
payments coming out of the income they expect you to make from their franchise operation.
Many will carry this loan themselves, while others will carry part of it and help find you
a lender to finance the remainder.
Franchisors have two objectives in mind when they offer franchises to the public: they
are trying to expand their operation, thus increasing their profit, and, secondly, they
are trying to raise capital for themselves. Generally speaking, if you have a good credit
history, and if they feel you have the necessary business personality to achieve success
with one of their operations, they'll do everything within their power to set you up in a
franchise outlet. Keep this in mind the next time you see an advertisement for a promising
franchise opportunity requiring a substantial amount of cash outlay. You don't necessarily
have to have all the money. They want you, and they'll help you!
Many people are unaware that most of today's largest corporations started on a
shoestring--on borrowed money. Many people feel that unless they've got it all "in
the bank" that they'll just have to keep plugging away until they can save up enough
to take the big plunge. Nothing could be farther from the truth. Just a quick bit of
research will show that 999 out of every 1,000 businesses started on borrowed money.
Look to your family and friends for financial help. Approach them in a
businesslike manner and tell them about your idea or plans. Ask them for a loan.
Agree to sign a formal statement to pay them back in three, five, or ten years--with
interest.
When you have your complete proposal assembled, consider a limited or general
partnership arrangement as a way to finance your project. In any kind of partnership, each
partner shares in the profits of the company. However, in a limited partnership each
person+s loss liability is limited to the amount of money he initially invested. The truth
is, in this situation you'll be doing all the work but sharing your gain with your
partners. However, it's a fairly sure way to obtain needed financing.
Another common method of obtaining business financing is through second mortgage loans
on a home or existing property. Say you purchased a home ten years ago for $35,000, and
today the assessed valuation is $85,000, with a mortgage of $25,000 still outstanding. A
lender may consider your home to be security or collateral for a loan up to $60,000. In
many instances, this is the easiest and surest way of getting the money needed for
franchise or other business investment. And, it makes sense. You've got net worth
available that is doing nothing but sitting there. Take this equity and invest it in a
worthwhile business, and you could double or triple your net worth each year for the rest
of your life.
Deciding to obtain a second mortgage on your home in order to finance a business
opportunity is without doubt a major decision, but if you are sure about your investment
project and are determined to succeed, you owe it to yourself to go ahead. You could
incorporate yourself, borrow money from your family through a second mortgage on your
home, and protect against the loss of your home through the Federal Homestead Act. All
business opportunities involve risk and sacrifice. It's up to you to determine the
feasibility of your success with your proposed venture, then decide on the best way
possible to proceed.
In every instance where you run into reluctance on the part of a lender to advance you
the needed capital, explore the feasibilities of "twoname" or
"cosigned" loans. You can have the franchisor sign with you, one of your
suppliers, a business associate, or even a friend. Oftentimes, you can borrow or rent
collateral such as stocks, bonds, time certificates, business equipment, or real estate,
and in this way give greater confidence to the lender in your abilities to repay the loan.
Whenever you can show a contract from someone who has agreed to purchase a certain number
of your products or services over a specified period of time, you have another important
piece of collateral. Another possibility might be to get a bank or a firm that has loaned
you money in the past to guarantee your loan. They simply guarantee that they'll lend you
money in the future if ever the need should arise.
Going straight to you neighborhood bank, applying for a business loan, and walking out
with the money is about the most unlikely of all your possibilities. Banks want to lend
money, and they must lend money in order to stay in business. However, most banks are
notoriously conservative and extremely reluctant to lend you money unless you have a
"regular income" that "guarantees" repayment. If and when you approach
a bank for a business loan, you'll need all your papers in order--your financial
statement, your business plan, credit history and all the endorsements you can get related
to your succeeding with your planned enterprise. In addition, it would be a good idea to
take along your accountant just to assure the banker that your plan is verifiable. In the
end, you'll find that it all boils down to whether or not the bank officer studying your
application is sold on you as a good credit risk. Thus, you must impress the banker--not
only with your proposal, but with your appearance and personality as well. Never show an
attitude of doubt or apology. Always be positive and sure of yourself. However, don't come
on so strong to them that you appear either demanding or overbearing. Just look good, know
your stuff, and project an attitude of determination to succeed.
In attempting to get a business loan from a bank, your best option is to deal with
commercial institutions. These are the banks that specialize in investment loans for going
businesses, real estate construction, and even venture programs. Look in the yellow pages
of your telephone or business directories. Call and ask for an appointment with the
manager, and then explore with him the possibilities of a loan for your project. One of
the "nice things" about commercial banks is that even though they may not be
able to approve a loan for your business ideas, they will almost always give you a list of
names of business people who might be interested in looking over your proposal for
investment purposes.
A lot of commercial banks stage investment lectures and seminars for the general
public. If you find one that does, attend. You'll meet a lot of local business people,
some of whom may be able to and interested in helping you with your business plans.
When you're looking for money to move on a business deal, it does not really matter
where the money comes from, or how it all comes about. It's important that you get the
money, and at terms that are suitable to you. Thus, don't overlook the possibilities of an
advertisement for a lender or investor in your local papers. Place your ad as well in the
national publications reaching people looking for investments. Other avenues to seriously
consider are foundations that offer grants, local dental and medical investment groups,
legal investment groups, business associations, trust companies, and other groups or
organizations looking for tax shelters.
It isn't a good idea to go to a finance company or other commercial lender of this type
for a business loan. The most obvious reason is the high interest rates you have to pay.
These companies borrow money from larger money lenders, and then turn around and lend it
to you at a higher interest rate than they pay. Herein lies the means by which they make
money from granting loans to you. The more it costs them to provide the money for you, the
more it's going to cost you to borrow their money. The only element in your favor when
borrowing from one of these agencies is that most will generally lend you money against
collateral other lenders won't accept. Insurance companies, pension funds, and commercial
paper houses offer lower interest rates, but they generally will not consider talking to
you unless you're requesting $500,000 or more. They'll also require that your business
proposal be backed by the best possible plan.
Remember: you must have a wellresearched and detailed business plan. You must have
all your documents and projections put together in an impressive presentation. And, you
will have to be the one who does the final selling of your proposal to the investor or
lender. This means your appearance, personality, and attitude, must be impeccable. Make no
mistake about it, before anyone lends you any sizeable amount of money, they're going to
want to take a close look at you personally before they hand over the money.
The different ways of financing a franchise opportunity are as many and varied as your
own creativity. The sources of obtaining money are virtually limitless, and available to
anyone with an idea. One word of caution before you jump into any franchise purchase
agreement: The price you pay to participate in a franchise operation is not always the
total cost involved in getting the business off the ground. With some franchise
operations, you may find other costs such as down payments on the purchase of property,
construction costs, remodeling or site improvements, equipment, fixtures, signs,
advertising, and training will greatly increase your needed capital. Virtually all
franchise deals require that in addition to the purchase price or the license fee of the
franchise, you give a certain percentage of your gross business income to the franchisor,
plus extra payments for promotion and administrative costs. Above all else, before you get
involved in a franchise -- or any business venture for that matter -- make sure you've
conducted a complete and thorough investigation of the opportunity presented. If it's a
good deal, then go with it. If you have any doubts or feel as though you're getting in
over your head, back off and look around for something not quite so expensive.
There are a lot of good franchise opportunities, and some not so good. It's important
that you be sure of what you're investing in, and that you can make money with it. From
there, preparing the proper business plan to elicit the necessary financing, while not
always a snap, can be done. Now's the time to do it! We wish you outstanding success with
your franchise business.
