Franchise Direct CEO Sean McGarry has previously discussed entrepreneurship and ways to identify business opportunities. Now that you’ve got your business idea, you’ll need financing to get your business off the ground. Sit back and listen to Sean’s tips to getting funding.
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“Every idea in business, whether they are big ideas or small ideas, needs funding of some sort. And in the present environment, the entrepreneur has never faced a more difficult time in terms of getting banks to finance small businesses,” Sean says.
Sean tells aspiring franchisees to diversify when seeking funding.
“Don’t limit yourself to one financial institution. One banker may have had a bad experience with your particular idea in the past and may be biased. Make a point of visiting maybe three to four different institutions,” he says.
When the time comes to sit down with a financial institution, be sure you have a clear idea of how to explain your business.
“I mentioned the importance of being patient. Make sure you’re able to clearly put forward the idea of the business and always bear in mind that the banker will always want to get down the figures. You’ve got to clearly set out how much money you need.”
When discussing your business idea with banks, it’s very important to be able to separate the financing you're seeking.
“You can divide that money out in two ways. One can be for the fixed assets- perhaps pieces of equipment or machinery or furniture. These are assets that are tangible and easily identifiable. More difficult is the area of the working capital, the day to day funding that you might need to keep the business running. These two areas coming together will make up the funding of the business.
“The critical thing for the bankers is going to be: 'you need X amount of money, how do you pay it back?' It’s what we call repayment capacity. You need to be able to clearly demonstrate that to the banker. Another thing is to match the funding to the life of the particular asset. If you’re buying something that has a life span of say, three years, it’s no use looking for funding for that for a 10 or 20 year period.”
Sean also reminds entrepreneurs that franchising continues to remain a solid investment in the economic times.
“One of the areas where people can find funding at the moment is the franchise sector. That’s because a large number of franchises have a very close association to particular funding organizations or indeed can help in the funding itself.”
In summation, Sean urges entrepreneurs not to despair. Banks still need to lend money to make profit. Follow his tips and you might improve your chances of getting your business off the ground.
In summary: in going out and looking for money at the moment, make sure that you’re clear in the amount that you’re asking for, make sure you have a clearly set-out cash flow which demonstrates your repayment capacity.
"And always remember that even in times like today, banks have to lend to people like you. That’s how they make their profit."
Drop in next week where Sean will describe how to bring equity into your own business.