Opening a franchise is an incredible business opportunity. Like any new business, however, it costs a great deal of money to get a franchise up and running. Almost every business owner needs to borrow funds to get started. Franchise financing is a great fit for many new franchisees. Here are five ways to make yourself appealing to lenders and have a better chance of securing financing.
Maintain or improve your credit rating
The better your credit score, the better chance you have of getting franchise financing. If you already have good credit, keep it up! Continue to make payments on time and stay on top of expenses. If your credit is less than stellar, work to build it up. Pay down debts, put off major expenses like vehicles if you can, and make credit card payments higher than the minimum on time.
Know how much collateral money you have, and have it ready
Lenders love franchisees with personal worth invested in the project. Know how much of a down payment you can afford. 10 to 20 per cent is the typical requirement, but if you can manage to put more than that down, so much the better!
Know the franchise inside and out
Do your homework! Be prepared to answer questions about the historical performance of other locations in your franchise and typical startup and operating costs. This information should be available from the franchisor. Not only will it help you secure franchise financing, it is essential information to operate your business!
Have a lawyer and accountant review the franchisor’s FDD
An FDD is a Franchise Disclosure Document. It is provided by the franchisor and it provides helpful tools like contact information for current owners and figures like the startup and operating costs mentioned above. It should also detail the company’s support plans and marketing materials. The FDD also discloses any existing or previous litigation the franchisor may be involved with. Review it with legal and financial professionals to make sure you understand what you’re undertaking and ask questions!
Have a business plan
Finally, you must have a detailed, thoughtful business plan. No lender will give you franchise financing without one, but the better it looks to them, the better your chances of securing funding will be. Many franchisors include business plan templates or guidelines in their FDDs. Research your market and industry, and be prepared to project conservative expectations for the first few years that manage expectations realistically.