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, except perhaps in strictly private conversations.

When the average person sees one of these opportunities, or
comes up with a similar idea of his own, the problems of
start-up capital may seem formidable. But in reality, they may
not be. In fact, just about anyone with a good credit record
and an “insider’s sense of business” 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 to present it to the
right person. These are the “how-to” 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
seek; 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.
For more details, and “how-to” instructions, see our report, HOW
TO PREPARE A PROFITABLE BUSINESS PLAN, report #3503.

Now, 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 of
money 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.
Within this sales presentation you must have all the facts and
figures; you must anticipate the questions and the possible
objections of the prospective lender with answers or
explanations; and you must “package” it as impressively as you
would yourself for an audience with the president of IBM or
General Motors.

The more money you ask for, the more “in-the-know” will be the
people you want to borrow from, and so the more detailed and
organized your proposal must be. This 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 he can work from.

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; they want to
be assured by your presentation that investing in your business
will make money for them. It’s just that simple at the bottom
line. 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.

So you’ll need a balance sheet describing your net worth – the
worth of what you own compared to the amount of money you owe.
You’ll also have to prove your stability and money-management
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.

So, now you have your balance sheet prepared; your credit
history organized in a light that’s favorable to you; your
business plan (with costs and income projected over the coming
three years), you’re ready to start looking for lenders or
investors.

Almost all franchisers 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 find you a lender to finance the remainder.

Franchisers have two objectives in mind when they offer
franchises to the public: They are trying to expand their
operation, thus increasing their profit, and 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 get you
in a franchise outlet. Keep this in mind the next time you see
an advertisement or 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 seem to be unaware that most of today’s largest
corporations started on a shoestring – on borrowed money. Many
people seem to feel that unless they’ve got it all “in hand” in
savings, then they’ll 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 were begun on borrowed money.

Look to your family and friends for financial help. Approach
them in a business-like manner; tell them about your idea or
plans, and 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 proposal assembled, you might even want to
think of a limited partnership or even a general partnership
arrangement as a way to finance your project. In any kind of
partnership, each partner shares in the profits of the company,
but in a limited partnership, each person’s loss liability is
limited to the amount of money he initially invested. The truth
is, in this kind of situation, you’ll be doing all the work and
sharing your gain with your partners, but then 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 piece of 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 to 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 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. The
important point here is that 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 lend you the money you need, explore the feasibilities
of “two-name” or “co-signed” loans. You can have the franchiser
sign with you, or 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 paper that
most lenders will accept as collateral. Still 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 your neighborhood bank, applying for a
business loan and walking out with the money is just about the
most unlikely of all your possibilities. Banks want to lend
money, and they must lend money in order to stay in business,
but 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 relative 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. In dealing with bankers,
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’re either demanding or overbearing. Just look good,
know your stuff, and project an attitude of determination to
succeed.

Your best bet, in attempting to get a business loan from a bank,
is to deal with commercial banks. 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 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.

Basically, 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 just won’t accept. Insurance
companies, pension funds, and commercial paper houses are not
too out of sight with their interest rates but they generally
will not even consider talking to you unless you’re requesting
$500,000 or more. They’ll also pretty much require that your
business proposal be backed by the best possible plan.

Finally, the bottom line is this: You must have a
well-researched and detailed business plan: you must have all
your documents and projections put together in an impressive
presentation; and then 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, because – make
no mistake about it – before anyone lends you any sizable
amount of money, they’re going to want to take a close look at
you personally before they hand over the money.

Actually, 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, building construction costs, remodeling or site
improvements, equipment, fixtures, signs, advertising, and
training. Virtually all franchise deals require that in
addition to the purchase price or the license fee of the
franchise, you’re required to give a certain percentage of your
gross business income to the franchiser, plus 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; but if you have any doubts or feel as
though you’re getting in over you head, back off and look around
for something not quite so ambitious, or perhaps 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 and 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.

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SMB Reviews
SMB Reviews 473 posts

SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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