Franchise Loans Checklist

What You Should Know When Getting A Franchise Loan

Franchise Loans | Commercial Capital Training GroupOwning a franchise is considered one of the most “turn key” business models available. Training, branding, support, and other benefits come with buying into a franchise. However, getting from the idea of a franchise to financing an operation can be tricky, if you do not know where to start.

Franchise Loans: Beyond The Paperwork

After you have met with a representative from the franchisor, and you go over the paperwork with a franchise attorney to make certain everything is understood and in order, it is time to figure out how much capital it is going to take to get the franchise up and running. Yes, there is the initial fee, but beyond that, there are going to be additional start-up expenses. Some franchises require an establishment that is built (or modified) to the franchisor’s specifications. This requires commercial real estate and construction loans. The next thing to consider is the capital necessary for equipment. Then working capital to get inventory and supplies from vendors, as well as other financial considerations. The financial and real estate requirements vary from franchise to franchise. Obviously home-based franchises are going to require less financing than, say, building a franchised hotel from the ground up. We have put together a procedure that can be followed for almost any type of franchise financing needed – from acquiring land to purchasing equipment, and even getting access to working capital.

The balance sheet is one of the most important tools in running a business. Before approaching banks or lenders for franchise financing, you must figure out your net worth. This starts with creating a balance sheet. A balance sheet is a running tally of earnings and assets (real estate, inventory, receivables, vehicles, equipment, stocks/bonds etc.), as well as liabilities. Simply put, liabilities are any financial obligations – such as existing debt, regular bills, rent/mortgage, outstanding balances with other companies, and the like. Once assets and liabilities are listed, subtract the latter from the former. This will give you an idea of your net worth.
Before seeking any form of franchise financing, it is imperative that you get a detailed credit report. Check to see if there are any outstanding balances that can be cleared up before meeting with lenders. Remember, credit agencies are enormous entities. As such, there are sometimes things that fall through the cracks. It pays to comb through your credit report, because occasionally balances that were previously paid off might linger and compromise an otherwise good credit score. Similarly (though this is very rare) an outstanding balance will appear which does not belong to you. Both types of oversights can be contested and removed from a credit report. Remember, most banks will require a clean credit report (or as close as possible) when seeking franchise financing. Commercial lenders are willing to finance franchises and work with them based on overall profitability in conjunction with their credit scores.
Banks and lenders are going to check your financial history and look for stability. If you are not an independent contractor, and you have been jumping from job to job, lenders are going to want to know why. As far as financial history goes, banks and lenders want to see a steady income, and the ability to pay bills and not spend beyond your means. Overdraft periods and late fees send up red flags to lenders, and they will seek an explanation. Having bills that have gone unpaid for a couple of months will definitely raise eyebrows. However, bills that go unpaid for 60 days or more due to being between jobs or some other event that compromises personal finances are more justifiable.
Putting together a strong business plan serves two purposes. First, a business plan gives lenders an idea of how much thought you have put into owning a franchise. The ability to present budgetary numbers, forecasts, projections, a rundown of immediate competitors, and a time line to demonstrate finances from opening day to turning a profit all go a long way in securing franchise loans. Second, a business plan is a guide and reference for your own use. If things seem to be straying or lagging from where you envisioned them to be, refer to the business plan. A business plan is a guideline; it is not set in stone. If the business takes a different direction than initially planned, or the vision changes, the business plan can always be revised. Keeping an updated and accurate business plan is more likely to help you get franchise financing than one which contains irrelevant data.
Some franchisors do, in fact, offer direct franchise loans. Franchise financing from the parent company can provide as little as 20 percent of the total amount needed, on up to 75 percent. It should be noted that almost all financing provided by the franchisor comes in the form of debt funding. Occasionally, this can be structured as an interest-only loan with a large balloon payment at the end of the terms (usually five to ten years). Alternatively, some franchisors offer financing plans for proprietary equipment and supplies, as well as start up operational costs.
Sometimes it is necessary to seek funding outside of what the franchisor offers. Unfortunately, if this is your very first entrepreneurial venture, it may be very difficult to meet the high requirements set by banks and other traditional lending institutions. As an alternative, many people get franchise financing through commercial finance companies. Commercial lenders can process loan requests much faster than banks, and they can offer solutions ranging from traditional debt financing and SBA loans, all the way up to equipment leasing, working capital, cash flow solutions, and even commercial real estate financing.

More Helpful Advice

Now that you have the basics about how to prepare to get franchise loans and supplemental funding, there are a few more tips we can offer. Look for lenders who not only understand the needs of small businesses, but specifically franchises. If possible, when working with lenders, look for franchise financing that does not bog down the balance sheets with debt. This can severely compromise business credit ratings and hinder franchise growth. Above all, do not put your life savings or retirement accounts on the line simply to launch a franchise operation. There are myriad financing options available – some based on debt, others equity, and even options for funding without taking on any debt at all. Explore your options, shop around, and do not settle for financing that will put your business in danger by locking you into payment plans that will eat away at your revenue or restrict your franchise’s cash flow.

Provide Franchise Loans To Franchisees

If you are still looking for the ideal franchise, or if you are about to take the plunge, consider The Commercial Capital Training Group. At The Commercial Capital Training Group (CCTG), we offer an alternative to the traditional franchise model. We provide the training and tools you need to launch your own business, with your branding, your clients, and (most importantly) your revenue.

CCTG offers you the opportunity to launch and run your own business in the world of commercial finance. Instead of being the person seeking franchise financing, you will be the one orchestrating financial agreements between investors and entrepreneurs, and taking home profits in an arena of nearly unlimited earning potential. We offer 24-hour support, access to our exclusive board of lenders, and everything you need to achieve full financial independence.

If you would like to learn more about how we can help you reach your dreams, contact The Commercial Capital Training Group today!

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