Congratulations on starting your franchise search! If you’re reading this post, it’s clear you’re already embarking on, arguably, the most important step: your due diligence.
Buying into a franchise generally requires a significant investment of your time and money, so before you go all in, you need to cover your bases. If you’re new to franchising, financing is likely one of the first hurdles you’ll face.
Check out these five answers to the most common questions about franchise financing to help you best navigate your new decision:
1) What is Franchise Financing?
As a new business owner, you’ll likely need to use franchise financing as a way to secure the necessary capital to start and grow your franchise establishment. This financing may be used to sign a lease on a new franchise location, purchase or lease new equipment or technology, train staff, and more.
2) How much funding will I be able to get?
The amount of funding your new business can obtain will depend upon a variety of factors. This includes personal facets, such as your credit rating and how long you’ve been in the industry, in addition to facets of the franchise you choose.
Brand and concept recognition of a proven franchise can play a major part in how much funding and what terms you’ll receive from a lender.
3) How much does a franchise cost?
The cost of buying and operating a franchise will depend greatly on a number of factors including what industry you opt to franchise in, how much office or storefront space the concept will require, what state and municipality you want to buy and operate the business in, how much overhead the business will require, and much more.
Some franchises can be launched for less than $50,000, while others will require investors to have $500,000+ in readily available liquid capital.
4) How do I get approved for franchise financing?
Different lenders will have different systems for approval. However, most will implement something akin to the following four-step process.
- They’ll begin with a consultation to get an idea of how much money you need to borrow, what goals you have in mind with that financing, and the particulars of the franchise you’re interested in.
- The lending company will initiate a due diligence overview with you in which our underwriter will go over the basics to get a good handle on what issues, if any, might need addressing in addition to the quantitative financials behind your new business. During this stage the underwriter might request an interview with current managers of the same franchise or check unit economic data.
- Now comes the approval process in which all documentation will be sent to you to finalize everything between you and the lenders.
- The final step is collaborating with the larger franchisor group to create the most fitting, customized financing system that best meets your needs and goals.
5) Do I need the assistance of a franchise attorney?
While it isn’t necessary, it often is in your best interest to keep a franchise lawyer on retainer, especially during your early days and when applying for franchise financing.
This is a business lawyer who has specialized in legal issues regarding franchises. A franchise attorney has the experience to aide you through the buying process, drawing up and revising any and all paperwork, and representing you in business negotiations.
Are you ready to get started? To learn more about the costs of opening your new business and how to start applying for franchise financing, contact us today or view our resource library to learn more about the ins and outs of franchising.
