EDITOR NOTE: This is a post from The Franchise King®, Joel Libava. Joel will be writing a blog post monthly for Franchise Direct.
If you’re thinking of buying a franchise, and you’re a young franchise buyer, this post is especially for you.
Here’s the deal:
Since almost every major bank from California to Vermont probably isn't going to approve a loan for the franchise you’re interested in buying, you may only have one other option; your family. I’ll get into that in a moment.
First off, I commend you; you’re taking the first step toward financial independence. You’re smart enough to know that a traditional job -- a career, isn’t what is once was. The days of working for one company for 25-35 years are long gone. If you decide to enter the job market after (college) graduation, you’ll probably end up having multiple jobs at multiple companies before you reach retirement age.
What you’re thinking of doing-buying a franchise, can (if you’re successful at franchise ownership) help you avoid the career pain that millions of people face each and every year.
However, it isn’t going to be easy. And, I’m not talking about the actual work…the 50-hour weeks you’ll be working to ensure that your new business is a success.
I’m referring to the money. That’s the part that will be the most challenging.
A Reality Check for Young Franchise Buyers
If you're college-aged, and you’re serious about becoming the owner of a franchise business, it's time for a reality check. Here it is:
You will be turned down by your local bank. There’s no way around it. Without long-term credit history…positive credit history, I can’t name one bank that will take you on. You’re too much of a risk.
In addition, you probably aren’t coming to the table flush with cash. I’m referring to money down. These days, if you can’t put in at least 20% of your own money into the deal, banks won’t be very enthusiastic about approving you for a start-up franchise loan.
A Franchise Financing Solution
If you’re serious about becoming the owner of a franchise, and the banks have turned you down, you may only have one option: Your family.
Choose someone in your family that may be able to loan you some money. Then, do these 3 things:
1. Brush up on your selling skills and presentation skills
It’s time to practice your presentation. How are you going to present your idea of becoming the owner of a franchise business? Figure it out, and make sure your presentation is powerful.
It’s also time to brush up on your sales skills-or learn a few. You’re going to have to sell your idea. It wouldn’t hurt to check out websites and blogs that feature basic selling tips.
2. Prepare a business plan
Approaching a family member for a loan without a business plan in hand won’t help your cause. Your uncle or grandparent will see you as a dreamer.
Show up with a formal business plan. Learn how to write one here.
3. Bring your materials.
Brochures, research information, and anything else you have pertaining to the franchise opportunity you’re looking into should be part of the package you bring with you when approaching family members for a loan.
Family members aren’t going to be too enthusiastic about writing you a $150,000 check (or more) for a franchise if you haven't done your homework.
The bottom line: It’s not easy to approach family members for a loan. But, if you walk in prepared…really prepared, your chances for getting the money you need to start a franchise will improve greatly.