Some relish the idea of being part of a company with prestige, clout and a track record of success. Others like the chance to get in on the ground floor of the "next big thing." And some people prefer the guidance, marketing and perks companies offer their franchisees.
All are valid reasons for becoming a franchisee, but remember that plenty of franchisees fail -- sometimes of their own volition and sometimes because the terms and conditions set by the company make it difficult to succeed. Without naming names, how often have we heard about a company's sales promotion that may bring customers into the store, but prevent the franchisee from making a profit on the promoted item?
When you do your due diligence in researching franchise opportunities - and you are going to do your due diligence, right? - one of the first things you should do is check the Small Business Administration (SBA) Franchise Directory at . The directory was created earlier this year and includes more than 2,500 eligible brands
While the list is designed for lenders and community development corporations "in evaluating the eligibility of a small business that operates under an agreement," would-be franchisees can make good use of it, too.
The directory is a compendium of franchises and brands the SBA has reviewed and determined are eligible for SBA financial assistance. As a reminder, SBA-backed loans should almost always be your first lending choice because of the combination of favorable rates, reasonable terms and generous repayment programs.
The extensive directory contains for each brand a franchise identifier code, an indicator that it meets Federal Trade Commission (FTC) guidelines for status franchise, notes as to whether various addendums are required, the date the franchise identifier code was started and a notes column (for only some franchises) including technical details.
So, why should you be carefully perusing this directory?
For one thing, there's a lot of information there and you might even come up with some franchise possibilities you hadn't considered. When people think about franchises, they tend to think of the ubiquitous Subways and Jiffy Lubes of the world, but as this list shows, there are hundreds of other possibilities.
More importantly, it can be an early warning sign if a company isn't eligible for the directory - or hasn't thought to get itself included.
If you become a franchisee of a company not on the directory, that obviously precludes SBA funding and it might make it difficult to line up anything with other reputable loan sources.
And the fact that the company hasn't considered inclusion on the directory is a red flag that the terms and conditions it offers to potential franchisees may well turn out to be onerous. This can save you headaches in advance.
I've mentioned numerous times before how the SBA is both an example of government working effectively and a godsend to small- and mid-sized business owners. Do yourself a favor and take advantage of the directory and any other services you need that the SBA provides.