For decades, the franchise industry has been both successful and lucrative. This is why countless entrepreneurs, business professionals, and investors flock towards franchise businesses every year. It's a relatively safe business model with plenty of upside and room for growth.
However, your ability to be successful with a franchise ultimately depends on your capability to fund the franchise. And unless you're sitting on a sizable nest egg that you're comfortable giving up, it's going to have to come from a third-party.
6 Tips for Franchise Funding Success
The good news is that people fund franchises every single day. As such, there are a variety of options that may work for you. The key is to figure out which one fits your situation best. Let's take a look at a handful of possibilities and tips.
In many cases, the franchisor will actually offer financing to the franchisee. This is why most entrepreneurs start the process by speaking with an in-house financing expert.
Franchises typically won't finance the entire startup because they see your capital investment as a sign that you're serious about the business. However, it's fairly common to see financing in the form of 15-75 percent of the debt burden. And while some will finance everything together, other franchisors take a segmented approach.
"Instead of financing the entire start-up cost, franchisors may offer financing for portions of the entire cost," Entrepreneur.com points out. "They may have financing plans for equipment, the franchise fee, operational costs or any combination thereof."
If this is your first time getting involved with business financing--and specifically franchise funding--it would behoove you to speak with someone who knows what they're doing. Thankfully, there are franchise funding specialists who dedicate their entire careers to this space.
Franchise funding specialists have connections with a variety of lenders, understand the ins and outs of franchising, and can explain possible strategies that would work in your situation. Best of all, these companies typically don't charge you anything upfront for their services.
"The widest variety of funding programs are available if you already own a location and want to either upgrade that one or open an additional one," says Reliant Funding CEO Adam Stettner. "The relationship you build with a financing vendor can provide options you come back to multiple times in the years ahead."
Certain individuals may qualify for government assistances or grants depending on the circumstances. For example, there are a handful of established programs designed to encourage veterans to start businesses. Franchises qualify under many of these programs.
One such program is VetFran. The program was started by the International Franchise Association and more than 300 companies are involved. In addition to funding, the program offers discounts on fees and expenses to those who qualify.
Sometimes, you'll have to look beyond traditional franchise funding opportunities and get creative. This is where your personal networking skills come into play. In order to find opportunities, it's imperative that you put yourself in front of as many people as possible.
Ask people out to lunch. Attend corporate events. Join local organizations and groups. Pitch your idea to formal investors. There are tons of things you can do, but it'll take a steady time commitment on your part. If you're willing to network and sacrifice the time, you should be able to find some sort of financing option.
Lenders and investors finance business ventures for two primary reasons. First off, they want to know that the business idea is strong. This is called proof of concept. The good news is that franchises almost always have proof of concept already established. Simply use the documents, presentations, and information that the franchisor provides you with.
Most importantly, though, lenders and investors want to know that you're worth investing in. Put simply, people invest in people (not ideas). In order to successfully attract financing--whether from a commercial bank or your rich friend down the street--you must learn to sell yourself.
Make sure you have a strong credit score. Have answers to every conceivable question. Understand the business from the inside out. Market your strengths and talents. Share your short-term and long-term goals. These are all ways to promote and you must be willing to showcase yourself.
Finally, it's important that you come to grip with rejection. Most entrepreneurs will get rejected at least once before securing financing. You may even get rejected twice, three times, or more. The key is to avoid letting rejection define you.
Don't take rejection from one lender or investor as a death sentence. While they may not be willing to invest in you, their decision has nothing to do with whether the next individual or organization will lend you money.
"If discouragement comes, pick yourself up by reviewing the background adventures of successful entrepreneurs. You will find that they also have had challenges that drive their success. A common trait in this situation is perseverance. This will be developed as you 'try, try again,'" says BusinessLoansToday.
Do Your Due Diligence
As an entrepreneur and business-minded individual, you understand the importance of doing your due diligence. Well, make sure you carry these same principles with you as you seek franchise funding.
Just because an individual or organization offers you the funding you need doesn't mean you should immediately accept it. Read the fine print, sort through your options, and ask questions. Not all financing is created equal and the last thing you want to do is put yourself in a compromising situation as you launch this new venture. Think about these tips as you proceed.