Buying into a flourishing restaurant business or an auto repair chain, for instance, gives you immediate brand recognition in the market and can provide you immediate revenue stream through the chain’s client base and accompanying sales and marketing support. That means it takes less time in struggling to make your startup business a going concern. However buying a franchise business can also be a volatile undertaking that can carry flat financial returns and in a most unpleasant situation, complete breakdown.
One of the major success elements in the process of purchasing a franchise is making sure that you get the right type of business loan. Making an investment in a franchise business calls for a strategic approach just like starting any business, consisting of eagerness to evaluate different options for financing your purchase.
Understand The Risk
The challenge here is that the franchisees usually become focused on their vision of running a business. They fail to make certain that they don’t have a sensible financial structure or management skills to run an effective franchise business.
Why You Need Franchise Financing?
The biggest mistake that business owners often make is undervaluing the amount required for the working capital. Your franchisor will offer you with the average capital requirements when starting your business. Here the franchisor plays an important role in your business plan, and estimating the right amount of working capital might be essential in your business success.
Even as there may be lowest net worth necessities, you don’t need to invest the whole equity amount that you have in your home in your business. Net worth is one thing and the liquidity is another thing. You also need to have sufficient amount of working capital to get you past break-even, or the factor at which your business makes profit. This process can take several months, in that process you have to pay for things like construction, lease, equipment, supplies, and payroll. In case you decide to open additional locations, you don’t need all of your liquidity engaged in your first business. By getting franchise financing, you can provide yourself a steady paycheck even as you set up your location.
Things You Need to Prepare
Personal Credit Score
Your personal credit score will be an important consideration for any lender who funds your franchise. This is probably the most important question why your personal credit score is more imperative as compared to your business credit score?
Here is the answer: While lenders look to fund your franchise, they require some sign of how consistent you are as a borrower. Your personal credit score is a good sign of your consistency. In case you’re accountable with your personal debts, possibilities are you’ll be liable with your enterprise money owed, as well. It is also advised that before you apply for franchise loans, you’ll need to evaluate your credit score and find out where it currently stands.
Before going further into the loan application process, you’ll need to put in order your financial documents. What you need is a financial statement, list of your assets and liabilities, net worth and personal income. Lenders need this information to find out how you deal with your finances.
Things You Need To Provide To Lender
Your personal balance sheet will provide the lenders an idea of what you have and what you owe, giving insights into your assets and liabilities. Your assets are what you possess such as checking accounts, cash on hand, savings accounts, real estate holdings, automobiles, securities, and other assets. The second thing your balance sheet includes is your liabilities or what you owe. The balance sheet will consist of your current bills, all of your expenses, home mortgage, business loans, and more.
Your income statements will confirm your source of income, assuring the lenders of where your money is coming from and going to. Majority of lenders will examine your income and the way you live within that income to find out whether you’re responsible with your personal finances. In case you manage your personal income adequately, chances are that you’ll manage your business finances responsibly.
As soon as you have your credit score and personal financial statistics in order, you’ll need to arrange a business plan. A comprehensive business plan could make or break your application for franchise financing. A comprehensive business plan includes a careful review of the business you are about to enter, revenue projections and cost analyses, estimates of working capital, a well elaborated marketing plan, and an explanation of your abilities as an entrepreneur.
What Are The Benefits Of Using An Alternative Lender For Franchise Financing?
In case your franchise business needs quick funding, you might not have time to wait for the franchise financing from a bank or the SBA—the approval process of this type of funding can take months. When you apply for franchise loan with an alternative lender, your application will be processed more quickly.
Additionally, if you don’t qualify for a loan from a traditional source such as banks or the SBA, you might have an easier time securing franchise financing from alternative lenders. The alternative lenders have easy qualification requirements. Alternative lenders are easily reachable as compared to traditional financing sources. Get your franchise funded from alternative lenders today.