Failing to expect the cost of getting and staying in business is one of the most serious mistakes that usually new business owners make. When you start to explore franchise financing options, you quickly find out that one of its benefits is having franchisors that can help you avoid this common mistake.
The guidelines that administer franchisors need them to provide you with a franchise disclosure document (FDD) delineating, as well as other information, the details of your initial investment. With a history of new franchise openings and knowledge of how the business generally functions throughout its initial phase, established franchisors can assess not only the cost of organizing and establishing the business, but additionally the working capital you will need.
Consider that the details and information contained in their franchise disclosure document, while appropriate for the franchise, may not be suitable to your unique location. Much of the system’s information is based on historic averages.
Your costs will rather vary based on your market. With the help of an experienced franchisor and other experts, you can identify these market variables and precisely estimate your overall investment. Knowing your capital requirements before finding the funding for your business is excellent.
You should have already decided before you started out your franchise search how much you needed to invest. You need to look not only into your bank accounts, but also to evaluate your liquid assets and what they actually worth both as collateral for franchise financing or as saleable items.
You may have also had asked your friends and family members to look whether they are ready to invest in your new business. Currently, understanding what you require, you can start the process of determining from where you get the initial investment.
Start with an expert franchisor as they have experienced the process with different franchisees. Many franchisors have some internal programs that help their franchisees in getting into business. These might possibly consist of:
- Equipment leasing programs
- Building and/or land leasing programs
- Financing programs offered by suppliers to the franchise system
- Deferral of the franchise or other costs due to the franchisor
In case the franchisor is a manufacturer of the products that you will be selling, they may provide a preliminary fill of inventory or provide you with longer than standard terms to pay for your preliminary stock.
Most franchisors have established relationships with lenders and other financing firms that are familiar with their business and are inclined to provide funding to qualified individuals. There are some franchisors that directly provide franchise financing and some provide guarantees on loan.
At some point, you will probably turn to your local banker. If you have a relationship with your banker, speak to them first. If they cannot be helpful to you immediately, they are likely to know different banks in your network that can be of help. Look out for banks experienced in lending to small businesses. There is also another alternative for franchise financing called alternative lenders. They are super fast as compared to traditional lending. By applying at alternative lenders, there is no upfront fees, and you do not have to provide any personal guarantee and get approval within 24 hours.