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.