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Funding Your Franchise, How To Avoid The Frenzy

Posted: 7/14/2014 08:14 AM by Interim Franchise

You have made that big decision. You are taking the biggest risk of your life and have selected the right franchise for your future. But the next step towards becoming an owner is the most critical one, financing your investment. While some of the franchisees have plenty of capital to fund a new business, most will need to obtain at least partial funding.

You have to put your nose to the grind-stone and do your due diligence.  During this dialing for dollars process be prepared to provide personal financial statements and tax records. Also your credit score will be carefully considered as well as your business plan. Make sure you have a clear, meticulous business plan that will highlight the major areas of concern to lenders.  Also include a detailed accounting of the financial performance of the franchise in which you intend to invest.

Start with your franchisor and see if they offer financing directly or through a third party. Franchisor financing programs range from zero-percent for a limited time to reduced franchise or royalty fees. During your process make certain you determine if financing is available. If conventional lenders won’t work with you, the Small Business Association (SBA) is another resource for business loans. The SBA doesn’t loan directly, but they back bank loans with a partial guarantee against default, making those loans less risky. Franchisees account for about 10% of SBA loan recipients.

Keep in mind, no lender will take on 100% of the risk. Expect to provide 20 to 30% of the business expenses from your own funds. Wherever you seek funding, you will need a solid business plan to make your case. The work you put into developing that will not only help you put your best foot forward with lenders, it will provide direction as you build your new business.

Take advantage of local small business incubators and business development centers. The expertise of those professionals can be invaluable as you develop your plan. They offer the value of experience as well as an objective eye. And ask questions. Speak to colleagues, bankers, accountants and anyone with a sharp business eye. The key to a successful franchise is not just marketing and customer service it is appropriate funding.

Steer clear of that funding frenzy by maximizing your due diligence and being a smart future franchisee.

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