How and Where to Get Money for a Franchise Idea
How often have you thumbed through a business opportunity magazine? Noticed a franchise opportunity advertisement,…. Have you felt that feeling of, you?d really like to get in on that? If only you had the money? Have an eye for opportunity. How and Where to Get Money for a Franchise Idea, stay with me and read further, let me get your mind rolling.
If you?re like most who are seeking greater opportunity and wealth, this probably happens to you more often than you care to admit, except perhaps in strictly private conversations.
When the average person sees one of these opportunities or comes up with a similar idea of his own, the problems of start-up capital may seem formidable. In reality, they may not be. In fact, just about anyone with a good credit record and an ?insider?s sense of business? can get the capital he or she needs, whenever it?s needed. The secret is in knowing how to put together a proper proposal, and to present it to the right person.
The first thing you?re going to need is a complete business plan. This is a complete and detailed description of exactly how you intend to operate the proposed business. Your business plan should detail precisely the product or products you plan to sell, as well as how you?re going to produce or manufacture the product. Your costs (inventory costs if you?re purchasing them from a supplier), must also be in document.
- Who is going to sell those products for you
- How they?re going to be sold
- The attendant costs
- When you expect to recoup your initial investment.
- Your plans for growth or expansion,
- The total rand amount you?re going to need to make it all work according to your plan
Your business plan must be detailed, complete with projected income and expense figures through at least the first three years of business.
For more details, and ?how-to? instructions, see our various programs.
Assuming you have your business plan all worked out, put together and ready for presentation with your request for capital, let?s talk about your capitalisation proposal.
Keep in mind that whenever you ask somebody for money, whether it?s for a small personal loan or a large amount of money to finance a business, you?re involved in a selling situation. So, you have to prepare a ?sales presentation? just as if you were getting ready to sell an automobile or refrigerator.
Within this sales presentation, you must have all the facts and figures. Anticipate the questions, and the possible objections of the prospective lender. Be ready with answers or explanations, and you must ?package? it as impressively as you would for yourself as for an audience with the president of IBM or General Motors.
Be aware, the more money you ask for, the more ?in-the-know? the people you want to borrow from will be, and so the more detailed and organised your proposal must be.
Look at it this way:
The more money you request for your business, the more your lenders or prospective investors are going to want to know about you, you?re planning, and your business.
They want to be impressed with the fact that you?ve done your homework. Let them see that you?ve researched everything and documented your facts and figures. Let them be assured by your presentation, that investing in your business will make money for them. If you can?t instil confidence in them with your business plan and loan or investment proposal, they?re just not going to give much positive thought to your request for capitalisation.
Detailed balance sheet
So, you?ll need a balance sheet describing your net worth, the worth of what you own, compared to the amount of money you owe.
You?ll also have to prove your stability and money-management talents relative to how successful you?ve been in paying off past obligations. If you have had credit problems in the past, get them ?cleaned up?, or at least explained on your file at your local credit bureau office.
Under the law, credit bureaus are required to give you all the information they have about you in their files. It is your right to correct any errors or enter explanations regarding negative reports on your credit. Do this without fail because prospective lenders or investors will definitely check your credit history.
So, now you have:
- balance sheet prepared
- credit history organised in a light that?s favourable to you
- business plan (with costs and income projected over the coming three years)
- Now you?re ready to start looking for lenders or investors.
Almost all franchisers offer help in setting up with one of their franchises. Most will go out of their way to assist you in getting the financing you need. Some will lend you the entire amount. Payment will come out of the income they expect you to make from their franchise operation. Many will carry this loan themselves, while others will carry part of it and find you a lender to finance the remainder.
Franchisers have two objectives in mind when they offer franchises to the public:
- They are trying to expand their operation, thus increasing their profit
- And they are trying to raise capital for themselves.
If you have a good credit history, they feel you have the necessary business personality to achieve success with one of their operations, they?ll do everything within their power to get you in a franchise outlet. Most Franchisee companies will go ahead if they feel comfortable with your business skills. Keep this in mind the next time you see an advertisement for a promising franchise opportunity requiring a substantial amount of cash outlay. You don?t necessarily have to have all the money. They want you, and they?ll help you!
Shoestring Borrowed Funds!!
Many people seem to be unaware that most of today?s largest corporations started on a shoestring of borrowed money. Many people seem to feel that unless they?ve got it all ?in hand? in savings, they?ll just have to keep plugging away until they can save up enough to take the big plunge. Nothing could be farther from the truth.
Research shows that 999 out of every 1,000 businesses were started from borrowed money.
Look to your family and friends for financial help. Approach them in a business-like manner. Share with them about your idea or plans. Explain why you would need assistance with a loan. Agree to sign a formal statement to pay them back in three, five or ten years, with interest.
When you have your proposal assembled, you might even want to think of a limited partnership, or even a general partnership arrangement as a way to finance your project. Have it all on paper signed with witnesses. There could be endless unhappiness if things go wrong.
In most partnerships, each partner shares in the profits of the company. In a limited partnership, each person?s loss liability is limited to the amount of money he initially invested. The truth is, in this kind of a situation, you?ll be doing all the work and sharing your gain with your partners. It is a fairly sure way to obtain needed financing.
Other financing options
Another common method of obtaining business financing, is through second mortgage loans on a home or existing piece of property. Say you purchased a home ten years ago for R 350 000, and today the assessed valuation is R 850 000, with a mortgage of R 250 000 still outstanding. A lender may consider your home to be security or collateral for a loan up to R 600 000.
In many instances, this is the easiest and surest way of getting the money needed for the franchise or other business investment. It makes sense, you?ve got ?net worth? available that is doing nothing but sitting there. Take this equity and invest it in a worthwhile business, and you could double or triple your net worth each year for the rest of your life.
Deciding to obtain a second mortgage on your home in order to finance a business opportunity is, without doubt, a major decision. If you are sure about your investment project, and are determined to succeed, you owe it to yourself to go ahead.
You could incorporate yourself, borrow money from your family through a second mortgage on your home, and protect against the loss of your home through the Federal Homestead Act.
Take calculated risks
The important point here is that all business opportunities involve risk and sacrifice. It?s up to you to determine the feasibility of your success with your proposed venture, then decide on the best way possible to proceed.
In every instance where you run into reluctance on the part of a lender to lend you the money you need, explore the feasibility of ?two-name? or ?co-signed? loans. You can have the franchiser sign with you, or one of your suppliers, a business associate or even a friend.
Often you can borrow or rent collateral such as:
- business equipment
- real estate
In this way, give greater confidence to the lender in your abilities to repay the loan.
Important to have a signed legal contract. Once you can show a contract, agreed to purchase a certain number of your products or services over a specified period of time, you have another important piece of paper that most lenders will accept as collateral.
Previous funds loaned
Another possibility might be to get a bank or a firm that has loaned you money in the past to guarantee your loan. They simply guarantee that they?ll lend you money in the future if ever the need should arise.
Your best bet, in attempting to get a business loan from a bank, is to deal with commercial banks. These are the banks that specialise in investment loans for growing businesses, real estate construction, and even venture programs.
Look in the yellow pages of your telephone or business directories, call and ask for an appointment with the manager, and then explore with him the possibilities of a loan for your project.
Not all is lost if you get a “NO” from Bank
One of the ?nice things? about commercial banks is that even though they may not be able to approve a loan for your business ideas, they will almost always give you a list of names of business people, who might be interested in looking over your proposal for investment purposes.
A lot of commercial banks stage investment lectures and seminars for the general public. If you find one that does, make a point to attend. You?ll meet a lot of local business people, some of whom may be able to and interested in helping you with your business plan.
Where to stay away
It isn?t a good idea to go to a finance company or other commercial lenders of this type for a business loan. The most obvious reason is the high-interest rates you have to pay. These companies borrow money from larger money lenders, and then turn around and lend it to you at a higher interest rate than they pay.
Finally, the bottom line?
Have a well-researched and detailed business plan. You must have all your documents and projections put together in an impressive presentation. The final selling of your proposal to the investor or lender, must be done by you. This means your appearance, personality and attitude is what counts here. Make no mistake about it, before anyone lends you any sizeable amount of money, they?re going to want to take a close look at you personally, before they hand over the money.
The sources of obtaining money are virtually limitless and available to anyone with an idea.
One word of caution before you jump into any franchise purchase agreement
The price you pay to participate in a franchise operation is not always the total cost involved in getting the business off the ground. With some franchise operations, you may find other costs such as:
- down payments on the purchase of property
- building construction costs
- remodelling or site improvements
Franchise deals require that in addition to the purchase price, license fee of the franchise, you?re required to give a certain percentage of your gross business income to the franchiser. Plus extra payments for promotion and administrative costs.
Before you get involved in a franchise or any business venture, make sure you?ve conducted a complete and thorough investigation of the opportunity presented.
Peace of Mind
If it?s a good deal, then go with it. …… If you have any doubts or feel as though you?re getting in over your head, back off. Look around for something not quite so ambitious, or perhaps expensive.
There are a lot of good franchise opportunities, but some, not so good. It?s important that you be sure of what you?re investing in, and that you can make money with it. Prepare a proper professional business plan.