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Financing Today: 10 Points for Franchisees to Consider

Financing and business go hand in hand. Franchisees need reliable advice and direction to make their financing needs a reality. Consider the following tips when making financing decisions for your new franchise location:

  1. The stronger the history, brand, and recognition of the franchise system in question, the more inclined banks will be to finance a higher percentage of start up costs. The franchisee’s financial plan in conjunction with the franchise system’s reputation will figure into what kind of lending package is available.
  2. Thoroughly research the financial statement and business plan for your franchise. Develop ways to provide collateral funding for your franchise and supplement the application. Work closely with your franchisor and establish what kind of support is offered for new franchisees during the loan application process.
  3. New franchisees and less experienced franchise systems generally require a higher investment of collateral to open a new franchise location. Potential franchisees can keep this in mind when deciding what business concept suits them and how much they are able to invest without lending support.
  4. Seek out banks that have an interest in working with franchises and always aim to anticipate roadblocks. Create a list of potential points raised as a means to refuse your loan application and outline legitimate and well researched counter arguments as necessary. Discuss any concerns with your franchisor.
  5. Expect challenges and be prepared in advance to discuss and negotiate the terms of your franchise loan. Isolate key ways to defend your loan application should it become necessary, make amendments where applicable, and seek out counsel from other experienced franchisees.
  6. Concise and informative financial statements for a loan application are best. Aim to deliver intent clearly without irrelevance. Discuss your loan application and any questions with your franchisor and experienced franchisees or other small business owners. Rehearsed presentation of documents and professionalism can add to a relaxed familiarity with your business concept.
  7. Working with a bank to finance your start-up franchise can run even more smoothly if a previously established relationship with the bank already exists. A proven track record that supplements the loan application can also support the application. Franchisees with business management experience are more attractive lending candidates, especially if they are working with an established franchise.
  8. Consider SBA and Patriot Express funding. Where funding directly from commercial banks is not possible or practical for the situation, potential franchisees and active-military moving into civilian life and survivors and spouses of veterans may qualify for these funding alternatives. Research your situation, discuss funding with your franchisor, and decide what option suits you.
  9. Maintain enough funds to cover slow periods, from the first six months of expenses to well into a year, and even longer depending on the nature of the business. Reserving funds specifically for situations where business is slower than expected, even beyond the first year, is highly beneficial and can keep new businesses on track when fluctuations occur.
  10. Remember that a business plan and the entire lending application process can work for franchisees far beyond simply acquiring funding. Preparing and reviewing such documents with your franchisor’s support brings running the business into focus. Gradually and consistently revising your aims where necessary maintains the balance of your business.
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