Franchise Financing
In this discussion, we are
going to focus on that franchise financing and how you can effectively obtain
the business capital that you need development of the franchise that you intend
to operate. In regards to business loan financing, franchises are an excellent
way of being able to properly secure the capital that you need in order to
launch your business operations. This is primarily due to the fact that banks
(and other financial institutions) are very keen to lend to franchise
organizations that have a proven history of assisting people in the developing
new entrepreneurial ventures through franchising systems. It goes without saying
that if you are a franchisee of a major franchising firm then your ability to
develop a profitable venture is substantially greater than that of any general
startup business. In regards to very large franchises, one of the primary that
primary benefit of working with a franchise company is able to generate on their
brand name as well as being able to sell their well known products for your
business. Of course, operating as a franchisee there are a number of issues that
you will need to face as you progress through your business operations. For
most, the most common issue that you will face as it relates to obtaining
franchise financing and operating as a franchisee is that you have very little
control over the general operations of your business. You will be required to
follow all of the standards set forth in the uniform franchise offering circular
you agree to when you became a franchisee of the specific franchising program
that you're working with as it pertains to developing a new entrepreneurial
venture. However, we will further discuss the issues pertaining to operating as
a franchise in the future articles. Specifically, this article will focus on the
issues as it pertains to receiving franchise financing.
In this economic climate, it is
imperative that you clearly showcas to the bank as to why the business that you
intend to start is economically viable. By seeking franchise financing you can
leverage the tremendous success that the franchising company has already
developed on your behalf and that you will participate in as you develop your
specific franchise. Additionally, when it comes to receiving franchise financing
many of franchising companies offer a number of different programs that are
available to you so that you can quickly obtain the business loans as well as
small business administration loans as relates to launching your specific
franchise. This will be one of the continued focuses of our discussions as
relates to launching new entrepreneurial ventures. Again, one of the best things
you can do as an entrepreneur is to enroll yourself in a franchise program that
not only seeks to develop a profitable entrepreneurial venture for you and your
company, but also seeks to allow you to aggressively expand within the
territories that have been set out by the franchising company. This, time and
time again, will not only be one of the continued focuses that will discuss as
it pertains to franchise financing. As with any type of business loan, typically
you will required to put up 10% to 20% of the total amount of capital required
in order to launch the operations under specific franchise. As it not only
relates to receiving franchise financing, is also a very common requirement as
it relates to the franchising company that you're working with for the new
entrepreneurial venture to your seeking to develop.
As it pertains to franchise
financing, you will be required to showcase the potential franchising company as
well as to your potential lender, your personal financial assets, as well is
your business acumen as relates to operating a business. As such, it is
extremely important for you to have extremely well
prepared financial statements as relates
to obtaining franchise financing, obtaining the licensure required in order to
work with the franchise, as well as securing properties and leases that will be
necessary for you in order to conduct business. Typically, the best way to
obtaining franchise financing is to work with a highly established company that
has a proven track record of having their franchisees maintained successful
businesses over a substantial time frame. For instance, there are a number of
businesses out there that are able to provide you with a franchise system as it
relates your business but have not yet proven themselves as businesses that are
that can be used in order to obtain the franchise financing that you're seeking.
However, this should not dissuade you from developing a franchise for a new
business that has been outstanding concept, product, or service that is demanded
by the general public. When you're developing your business plan for franchise
financing you should heavily focused on the marketing and sales infrastructure
that is conducted on your behalf by the franchising company. This, with further
showcase to the lending institution that you're applying for business credit,
that the franchise for his extremely committed to ensuring that their
franchisees remain profitable in cash for positive at all times. This is
especially true if you’re operating a franchise that is a service-based
business. As will discuss in future articles, franchisees that operate within
service businesses typically require a large amount of startup capital despite
the fact they're not capital intensive businesses. The very fact that even if
the franchise that you are seeking to acquire or develop a service-based
business requires a substantial upfront cost is due to the fact the we will be
required to put up anywhere from $15,000-$30,000 for the initial franchise fee
as well as acquiring the appropriate equipment, real estate, leases, and working
capital that will assist you in explaining the visibility of the franchise.
It should be noted that in
regards to franchise financing that many franchisors will provide direct sources
of capital for qualified franchisees. When evaluating different franchises that
you may seek to develop then you should absolutely view the support services
available via UFOC and marketing and allow them to use their brand name as it
pertains to your business operations. If you are able to screen potential
franchises, through an extensive due diligence period, then you can determine
which franchise is best for you as it relates to the industry genre that you're
looking to enter with a new entrepreneurial venture. As it pertains to franchise
financing, again, banks given the current economic situation within the
United States and on a worldwide basis have
taken to providing business loans to franchises because of the low risks that
are involved with extending business credit to these businesses. For instance,
if you decide to develop a franchise from a nationally known business and the
risks associated with launching this new business are substantially lower than
that if you intend to develop a company from scratch. Many franchising companies
have an existing marketing structure in place so that individuals can find your
business very quickly. As such, it is extremely important to remember, that
banks are not in the business of taking risks as it pertains to franchise
financing. They want to clearly see that they are able to recoup the investment
that they are providing to you with a significant amount of interest for the
franchise financing of the provided to you over a five-year, seven year, or ten
year time frame as it relates to the ongoing development and expansion of your
franchise. For the major franchising companies, you should have an account
executive that works with you directly as it pertains not only to the ongoing
development of the franchise but also as it pertains to receiving the franchise
financing that he in order to continually expand their business while
concurrently developing new locations in territories that you purchase from the
franchising company. As we discussed above, the best franchising companies are
businesses that focus on allowing third-party entrepreneurs to aggressively
expand within their market by acquiring new territories, acquiring existing
franchises, and acquiring additional franchise financing.
One of things we should be
aware of as it pertains to franchise financing is that in many instances the
franchising company will act as a guarantor for the financing that is specific
to your business operations. However, and much like our previous discussions as
it relates to business loans, you should be further prepared to provide
extensive personal financial statements as well as a personal guarantee for any
debt obligation that you undertake as a relates to franchise financing and the
continued expansion of the number of locations you own as it pertains to be
specific franchise system that you're developing. This is especially true if the
franchise that you're developing is not had a substantial amount of tangible
assets, inventory, real estate, or other assets that are secured by the product
or service that you offering to the general public through your franchise.
If this language is uncommon to
you then you consult with a certified public accountant as it relates to
developing a new entrepreneurial venture through a franchising system. As will
continue discuss in our general business planning and general business
development articles, franchising is an excellent way for you to enter a new
enter a new venture without taking an undue risk as it pertains to the
development of a new business. Again, one of the best benefits of working with a
major franchise is that you can capitalize on their brand name; products,
inventory, as well as proprietary develop services that offer to the general
public to be more specific franchise. This is one of the reasons why a number of
banks, given the current economic climate, are willing to lend money to
franchises simply due to the fact that the risks related to business failure are
substantially ameliorated by the fact that you're working with a regionally or
nationally recognized company that will provide you with ongoing support as it
relates to the development and expansion of your specific business venture.
In return, again, to our
discussion as a relates to franchise financing there are typically two ways that
you are able to receive the capital you need in order to launch your business
operations. First, is that you can obtain a standard conventional business loan
or small business administration loan from a traditional bank or financial
institution in order to watch your operations of your franchise. Again, you
should be fully aware of the fact that you can anticipate that most financial
institutions require you to make a 20% down payment as a relates to the
development of your franchise operations. The second type of financing is
available to you as it relates to franchising operations is that the franchise
for may directly provide you with a loan that you need in order launch your new
entrepreneurial enterprise. As such, prior to receiving financing from the
franchising company you should always ensure that qualified attorney reviews the
documentation the convert been provided with so that you can make it extremely
informed decision as to whether or not the terms of this franchise financing is
in your best interest. Again, the most well established franchise businesses
typically offer financing support to their franchisees. For smaller franchising
companies, most businesses work with a number of different business loan
brokers, commercial loan brokers, as well as established financial institutions
that are able to provide their individual franchisees with the capital they need
in order to launch their business ventures.
In regards to the continued
development of your franchise, you may need to have any working capital line of
credit as it pertains to your overall franchise financing. This is especially
true if the franchise that you operate requires that you purchase a substantial
amount of inventory on an ongoing basis. You should always make sure that you do
the appropriate due diligence, not only as it relates to the franchise that you
are seeking to purchase, but also as it relates to the franchise financing that
you will need in order to launch or business operations. As of the time of the
writing of this article, there are currently more than 50,000 different
franchise systems within the United States that are seeking to expand
organically by shifting the risks associated with operating franchise to a
third-party entrepreneurs that are willing to obtain the franchise financing
that putting up a substantial personal capital investment for the development of
a specific business. As such, you should remember that the franchising company
that you're working with is ultimately seeking to shift the risks associated
with the development of new locations or service locations to you as the
franchisee. These risks, especially as it relates to franchise financing, are
primarily to do to the fact that franchise companies once they have established
their system are seeking to become marketers of new products, services, and
concurrently acting as a marker for the types of products and services that you
will sell to your franchise.
As we discussed above, many of
our future discussions as it relates to general business operations, again, will
be focused on the issues as it relates to managing a franchise business.
However, one of things we should be aware of are the issues as it pertains to
franchise financing in that you will be taking a substantial financial risk as
you develop your franchise on behalf of the third-party that you're working
with.
As we've discussed, time and
time again, is extremely important when you're seeking franchise financing the
you have a very well developed business plan that clearly showcases two
financials to should have intend to repay the loan, the operations of the
franchise business that you are purchasing, and how you intend to capitalize the
brand name as been developed by the franchising company. In many instances, you
will also be required to submit the uniform franchise offering circular that
needs to be provided to you any time you engage your franchise company for the
development of a new entrepreneurial venture.
One of the primary benefits of
engaging franchise financing is that you will be able to launch the
entrepreneurial venture that you are starting to seek relatively seamlessly,
given the current economic climate, many banks are now very much willing provide
financing for businesses that operate in the franchise capacity simply due to a
lower risks that are associated with operating a franchise business. This trend
is expected to continue for a significant period of time until the credit
markets correct themselves as a relates to obtaining conventional business
loans, small business administration loans, as well as other types of financing
in regards to the launching of new businesses. By working with a franchise
company and seeking franchise financing - you will be in an excellent position
to receive the capital that you need in order to launch your new business
venture while effectively acquiring a business loan with an interest rate that
is commensurate with the prime rate that is currently available within the
United States. Again, then reviewing your
financing options as it pertains to the launch of a franchise business, you
should be fully aware of all the risks that you need to assume as you develop a
franchise business. This is especially true as you seek franchise financing as
it relates to the ongoing development for initial development of a franchise.
However, in our experience, most individuals that are seeking to develop a
franchise and that they are properly qualified to receive the financing of the
need to able to obtain business loan funding so that they can effectively
develop their business is seamlessly not only for their initial business but
also for ongoing development as it relates to their activities pertaining to the
franchise.
In many of our ongoing
articles, we are going to continue to discuss the issues that pertain to
franchise financing, the development of new franchises, as well as the downsides
of working with a franchise company as it relates to developing new
entrepreneurial ventures. The primary downsides as it relates to franchises and
seeking franchise financing is that you'll ultimately be treated more as a
business manager of a specific territory or number of territories rather than a
business owner. However, when it comes time for you to sell your individual
franchise for network of franchise businesses that you've developed then you
can't is a paper you receive an extensive price-to-earnings multiple for the
network the developed on behalf of a third-party franchise company.
Additionally, while we have touched on some of the downsides as it pertains to
working with a franchise company, the primary upside is that you'll be able to
easily acquire the franchise financing that you need an ongoing basis as you
seek to develop and expand your company.
Thank you again for tuning in
to article as it pertains to franchise financing and TheFinanceResource.com
looks forward providing you with continued insightful advice and commentary as
it relates to obtaining business loans, franchise financing, business lines of
credit, and other financing, and other forms of financing as a relates not only
to development of new franchises but also for the development of new
entrepreneurial ventures that are unrelated to franchises.