How to Finance a Small Business Franchise

The following is a guest contribution from Devin Conner of Franchise Marketing Systems.

Devin Connon - ThumbnailOkay, so you’ve found the perfect business idea, one that seems to add up from every angle and couldn’t be better for you and your future plans. The only problem is that you don’t have the capital to open the doors. Well, unfortunately this is a rather significant problem for a small business startup, particularly in today’s lending environment. There is no question, it is difficult to get a loan today for ANYTHING, much less for a small business startup.

Small business lending is one of the highest risk categories in lending practices, so now is not the time to be crossing your fingers and just ‘hoping’ that the money will come to you. The 90’s are gone … it doesn’t work that way anymore.

So how do you get a loan for small business startup today? It starts with planning, documentation and preparation … then ends with a professional and credible presentation to someone or something who has money.

1.  Don’t hope. Show the bank how you will take their money and turn it into a profitable business venture. Picture the bank like any other person you would try to borrow money from. They are nervous, they need to trust you and most importantly, they need to believe that you will pay them back!

Franchise Financing2.  Don’t limit your sources. Banks aren’t the only options out there for a small business startup loan. Private investor groups exist, but generally speaking, won’t deal with you unless you are looking for over $2 million in funding. You might consider a ‘Hard Money Loan,’ but you better have a quick ramp up to cover the cost of financing.

3.  Develop a great business plan that shows the capability of the business and YOU!  You should plan on selling yourself as much, if not more than the business you are looking to fund. What makes you special, talented, intelligent and proven that will lend credibility?

4.  You need to have the PERSONAL balance sheet to get a loan. Plan on needing to have a credit score of at least 680 and a net worth of 1.5 times what you are asking for in the small business loan. You should also have 30% of the loan to put up in collateral to the lender in this market.

5.  Consider a franchise. Buying a franchise that has proven itself and has examples to validate the financial model gives you a leg up in the financing process. Franchises have a higher rate of success and isn’t that what it’s all about?

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

7 Comments

  1. I investigated several franchises. A check cashing place, laundromat, tanning salon, and a another one I can’t remember. It was a bit of a risk, so I went the real estate route instead.

    • Based on what I read previously on your blog, it seems as though that choice has worked out well for you. I have toyed with the idea of a franchise but never committed any real effort to pursuing that as an addition to my investment portfolio; however, I suppose there is always a chance. Thanks for taking the time to stop by and add to the conversation.

  2. Instead of financing a startup I think it’s smarter to open a line of credit. If you need a lot of debt financing to start your business, I hope it’s already a proven business plan.

  3. I’ve never had to finance a small business, but these sound like good tips to get you started. Thanks for sharing!

    • Thanks for stopping by, Kayla … now get out there and start your small business 🙂

  4. Great article and relevant in today’s franchise community. With the right plan, financing is possible, just takes time and effort.

    • No doubt that success starts with a well thought out plan. Thanks for stopping by and kicking off the conversation, Jessica.

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