Franchise Financing: What You Need Before You Apply
If you are serious about opening a franchise and need some help getting started, first make sure you have all your financial ducks in a row. Here are a few things you need to do before applying for franchise financing.
Know How Much You Need to Borrow
Franchises require different startup costs than other businesses. For example, you have to pay franchise fees to start the business, royalty fees to use the company’s name, logo and branding, and marketing fees to advertise the company. Franchise fees may be one-time costs or monthly payments, where royalty and marketing fees are ongoing. Such fees are usually non-negotiable and non-refundable. Consider these fees in addition to normal startup and operational costs to determine how much money you need to borrow.
Gather Your Financial Statements
Franchise financing lenders need proof that you are responsible and assurance that you will make your payments on time. Therefore, you need a high credit rating, acceptable debt to credit ratio and strong history of making payments and paying off debt. Before you apply, check your credit report and dispute any inaccurate items.
You also need to show lenders what your personal finances look like. Lenders want to know about your bank accounts, how much income you currently receive, whether you own a car and a house and what types of assets you have. They also want you to disclose your current debt and expenses.
The best way to present this information is through personal balance sheets and income statements. These make it easier for lenders to find important information and it makes your accounting skills look sharp.
Prepare a Business Plan
Every business needs a plan of action to operate effectively and turn a profit. Lenders want to see your plan and evaluate whether your franchise is viable. Your plan must include estimated costs for running the business, projected revenue and a marketing strategy. Do not skimp on your business plan or lenders may not take your application seriously.
Know Your Financing Options
Check with your franchisor to see if the company offers funding. If not, you can apply for a loan through an alternative lender, commercial bank or the SBA. It is wise to consult your financial advisor about which options are most appropriate for you.
Franchising can be a lucrative business if done correctly. In order to secure franchise financing and get your business rolling fast, clean up your finances, organize all your personal information and create a solid business plan that lenders cannot turn down.