How And Where To Get Money For A Franchise Idea

How often have you thumbed through a business opportunitymagazine, noticed a franchise opportunity advertisement, andfelt you'd really like to get in on that... if only you had themoney? If you're like most who are seeking greater opportunityand wealth, this probably happens with you more often than youcare to admit, except perhaps in strictly private conversations.
When the average person sees one of these opportunities, orcomes up with a similar idea of his own, the problems ofstart-up capital may seem formidable. But in reality, they maynot be. In fact, just about anyone with a good credit recordand an "insider's sense of business" can get the capital he orshe needs, whenever it's needed. The secret is in knowing howto put together a proper proposal, and to present it to theright person. These are the "how-to" instructions we're goingto give you in this report.
The first thing you're going to need is a complete businessplan. This is a complete and detailed description of exactlyhow you intend to operate the proposed business. Your businessplan should detail precisely the product or products you plan toseek; how you're going to produce or manufacture the product;your costs (inventory costs if you're purchasing them from asupplier); who is going to sell those products for you; howthey're going to be sold; the attendant costs; when you expectto recoup your initial investment; your plans for growth orexpansion; and the total dollar amount you're going to need tomake it all work according to your plan. Your business planmust be detailed - omplete with projected income and expensefigures - through at least the first three years of business. For more details, and "how-to" instructions, see our report, HOWTO PREPARE A PROFITABLE BUSINESS PLAN, report #3503.
Now, assuming you have your business plan all worked out, puttogether and ready for presentation with your request forcapital. 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 ofmoney to finance a business, you're involved in a sellingsituation. You have to prepare a "sales presentation" just asif you wre getting ready to sell an automobile or refrigerator. Within this sales presentation you must have all the facts andfigures; you must anticipate the questions and the possibleobjections of the prospective lender with answers orexplanations; and you must "package" it as impressively as youwould yourself for an audience with the president of IBM orGeneral Motors.
The more money you ask for, the more "in-the-know" will be thepeople you want to borrow from, and so the more detailed andorganized your proposal must be. This shouldn't cause you toomuch worry however, because you can hire a CPA to help you putit together properly, once you've got the facts and have abusiness plan he can work from.
Look at it this way: The more money you request for yourbusiness, the more your lenders or prospective investors aregoing to want to know about you, your planning, and yourbusiness. They want to be impressed with the fact that you'vedone your homework; they want to see that you've researchedeverything and documented your facts and figures; they want tobe assured by your presentation that investing in your businesswill make money for them. It's just that simple at the bottomline. Unless you can instill confidence in them with yourbusiness plan and loan or investment proposal, they're just notgoing to give much positive thought to your request forcapitalization.
So you'll need a balance sheet describing your net worth - theworth of what you own compared to the amount of money you owe. You'll also have to prove your stability and money-managementtalents relative to how successful you've been in paying offpast obligations. If you have had credit problems in the past,get them "cleaned up", or at least explained on your file atyour local credit bureau office. Under the law, credit bureausare required to give you all the information they have about youin their files, and it's your right to correct any errors orenter explanations regarding negative reports on your credit. Do this without fail because prospective lenders or investorswill definitely check your credit history.
So, now you have your balance sheet prepared; your credithistory organized in a light that's favorable to you; yourbusiness plan (with costs and income projected over the comingthree years), you're ready to start looking for lenders orinvestors.
Almost all franchisors offer help in setting up with one oftheir franchises. Most will go out of their way to assist youin getting the financing you need. some will lend you theentire amount, with payments coming out of the income theyexpect you to make from their franchise operation. Many willcarry this loan themselves, while others will carry part of itand find you a lender to finance the remainder.
Franchisors have two objectives in mind when they offerfranchises to the public: They are trying to expand theiroperation, thus increasing their profit, and they are trying toraise capital for themselves. Generally speaking, if you have agood credit history, and if they feel you have the necessarybusiness personality to achieve success with one of theiroperations, they'll do everything within their power to get youin a franchise outlet. Keep this in mind the next time you seean advertisement or a promising franchise opportunity requiringa substantial amount of cash outlay. You don't necessarily haveto have all the money. They want you, and they'll help you!
Many people seem to be unaware that most of today's largestcorporations started on a shoestring - on borrowed money. Manypeople seem to feel that unless they've got it all "in hand" insavings, then they'll have to keep plugging away until they cansave up enough to take the big plunge. Nothing could be fartherfrom the truth. Just a quick bit of research will show that 999out of every 1,000 businesses were begun on borrowed money.
Look to your family and friends for financial help. Approachthem in a business-like manner; tell them about your idea orplans, and ask them for a loan. Agree to sign a formalstatement to pay them back in three, five or ten years, withinterest.
When you have your proposal assembled, you might even want tothink of a limited partnership or even a general partnershiparrangement as a way to finance your project. In any kind ofpartnership, each partner shares in the profits of the company,but in a limited partnership, each person's loss liability islimited to the amount of money he initially invested. The truthis, in this kind of situation, you'll be doing all the work andsharing your gain with your partners, but then it's a fairlysure way to obtain needed financing.
Another common method of obtaining business financing is throughsecond mortgage loans on a home or existing piece of property. Say you purchased a home ten years ago for $35,000, and todaythe assessed valuation is $85,000, with a mortgage of $25,000still outstanding. A lender may consider your home to besecurity or collateral for a loan up to $60,000. In manyinstances, this is the easiest and surest way to getting themoney needed for franchise or other business investment. And,it makes sense; you've got "net worth" available that is doingnothing but sitting there. Take this equity and invest it in aworthwhile business, and you could double or triple your networth each year for the rest of your life.
Deciding to obtain second mortgage on your home in order tofinance a business opportunity is without doubt a majordecision, but if you are sure about your investment project, andare determined to succeed, you owe it to yourself to go ahead. You could incorporate yourself, borrow money from your familythrough a second mortgage on your home, and protect against theloss of your home through the Federal Homestead Act. Theimportant point here is that all business opportunities involverisk and sacrifice. It's up to you to determine the feasibilityof your success with your proposed venture, then decide on thebest way possible to proceed.
In every instance where you run into reluctance on the part of alender to lend you the money you need, explore the feasibilitiesof "two-name" or "co-signed" loans. You can have the franchisorsign with you, or one of your suppliers, a business associate oreven a friend. Oftentimes you can borrow or rent collateralsuch as stocks, bonds, time certificates, business equipment orreal estate, and in this way give greater confidence to thelender in your abilities to repay the loan. Whenever you canshow a contract from someone who has agreed to purchase acertain number of your products or services over a specifiedperiod of time, you have another important piece of paper thatmost lenders will accept as collateral. Still anotherpossibility might be to get a bank or a firm that has loaned youmoney in the past to guarantee your loan. They simply guaranteethat they'll lend you money in the future if ever the needshould arise.
Going straight to your neighborhood bank, applying for abusiness loan and walking out with the money is just about themost unlikely of all your possibilities. Banks want to lendmoney, and they must lend money in order to stay in business,but most banks are notoriously conservative and extremelyreluctant to lend you money unless you have a "regular income"that "guarantees" repayment. If and when you approach a bankfor a business loan, you'll need all your papers in order - yourfinancial statement, your business plan, credit history and allthe endorsements you can get relative to your succeeding withyour planned enterprise. In addition, it would be a good ideato take along your accountant just to assure the banker thatyour plan is verifiable. In the end, you'll find that it allboils down to whether or not the bank officer studying yourapplication is sold on you as a good credit risk. Thus you mustimpress the banker - not only with your proposal, but with yourappearance and personality as well. In dealing with bankers,never show an attitude of doubt or apology. Always be positiveand sure of yourself. However, don't come on so strong to themthat you're either demanding or overbearing. Just look good,know your stuff, and project an attitude of determination tosucceed.
Your best bet, in attempting to get a business loan from a bank,is to deal with commercial banks. These are the banks thatspecialize in investment loans for going businesses, real estateconstruction, and even venture programs. Look in the yellowpages of your telephone or business directories; call and askfor an appointment with the manager; and then explore with himthe possibilities of a loan for your project. One of the "nicethings" about commercial banks is that even though they may notbe able to approve a loan for your business ideas, they willalmost always give you a list of names of business people whomight be interested in looking over your proposal for investmentpurposes. A lot of commercial banks stage investment lecturesand seminars for the general public. If you find one that does,attend. You'll meet a lot of local business people, some ofwhom may be able to and interested in helping you with yourbusiness plans.
When you're looking for money to move on a business deal, itdoes not really matter where the money comes from, or how it allcomes about. It's important that you GET the money, and atterms that are suitable to you. Thus, don't overlook thepossibilities of an advertisement for a lender or investor inyour local papers. Place your ad as well in nationalpublications reaching people looking for investments. Otheravenues to seriously consider are foundations that offer grants,local dental and medical investment groups, legal investmentgroups, business associations, trust companies and other groupsor organizations looking for tax shelters.
Basically, it isn't a good idea to go to a finance company orother commercial lender of this type for a business loan. Themost obvious reason is the high interest rates you have to pay. These companies borrow money from larger money lenders, and thenturn around and lend it to you at a higher interest rate thanthey pay. Herein lies the means by which they make money fromgranting loans to you. The more it costs them to provide themoney for you, the more it's going to cost you to borrow theirmoney. The only element in your favor when borrowing from oneof these agencies is that most will generally lend you moneyagainst collateral other lenders just won't accept. Insurancecompanies, pension funds, and commercial paper houses are nottoo out of sight with their interest rates but they generallywill not even consider talking to you unless you're requesting$500,000 or more. They'll also pretty much require that yourbusiness proposal be backed by the best possible plan.
Finally, the bottom line is this: You must have awell-researched and detailed business plan: you must have allyour documents and projections put together in an impressivepresentation; and then you will have to be the one who does thefinal selling of your proposal to the investor or lender. Thismeans your appearance, personality and attitude, because - makeno mistake about it - before anyone lends you any sizeableamount of money, they're going to want to take a close look atyou personally before they hand over the money.
Actually, the different ways of financing a franchiseopportunity are as many and varied as your own creativity. Thesources of obtaining money are virtually limitless, andavailable to anyone with an idea.
One word of caution before you jump into any franchise purchaseagreement: The price you pay to participate in a franchiseoperation is not always the total cost involved in getting thebusiness off the ground. With some franchise operations, youmay find other costs such as down payments on the purchase ofproperty, building construction costs, remodelling or siteimprovements, equipment, fixtures, signs, advertising, andtraining. Virtually all franchise deals require that inaddition to the purchase price or the license fee of thefranchise, you're required to give a certain percentage of yourgross business income to the franchisor, plus payments forpromotion and administrative costs. Above all else, before youget involved in a franchise, or any business venture for thatmatter, make sure you've conducted a complete and thoroughinvestigation of the opportunity presented. If it's a gooddeal, then go with it; but if you have any doubts or feel asthough you're getting in over you head, back off and look aroundfor something not quite so ambitious, or perhaps expensive.
There are a lot of good franchise opportunities and some not sogood. It's important that you be sure of what you're investingin, and that you can make money with it. From there, preparingthe proper business plan and the necessary financing, while notalways a snap, can be done. Now's the time to do it! We wishyou outstanding success with your franchise business.