Though opening your own franchise might feel like a dream come true, franchisees must have their feet planted squarely in reality during the planning stages, especially when it comes to financing. Taking on a franchisor's lucrative brand name doesn't automatically come with endless wealth from which to draw. Franchisees must gather the funds required to get the business off the ground and launch it into success. Besides, taking on employees is a huge responsibility. They rely on the livelihood of your franchise, let alone the weekly paycheck.
As a franchise owner – and a humane person – don't drag employees into a quagmire because of poor planning. Invest a little forethought into how you'll finance your franchise and the return will surprise you.
"Will you be able to provide solid examples of how trustworthy and dependable you are?"
Understand your individual net worth
First things first: You have literal monetary worth. Before looking for funds anywhere, it is integral to learn in great detail exactly what you're worth in the eyes of financiers. As Entrepreneur outlined, this value is divided into two categories: assets and liabilities. Assets are the items that have equitable price – the cash in your bank account, the car you own, your home and any expensive antiques or doodads therein. Liabilities are a combination of what you owe and what you're contractually obligated to pay in the future, like bills, mortgages, loans, etc. Subtract liabilities from assets and you'll have your net worth.
But financiers will need more than just a few mathematical solutions. Will you be able to provide solid examples of how trustworthy and dependable you are? You'll probably need something much more substantial than a note from your mom. How about a job you held for multiple years? Or an instance where you successfully managed something of great import?
Ask the franchisor
Franchisors understand the kind of personal investment that comes with opening a business. As such, don't be shy about asking what sort of financing options are available to inquiring franchisees.
Depending on what sort of enterprise you'll be engaged in, franchisors can propose options like zero-percent financing or smaller up-front payments for things likes licensure and royalties. Do a little digging to see exactly what franchisors can manage to get your business up and running.
Whatever you do, avoid risky loans
Even though there are many options available to scrounge up a little extra startup capital, some franchisees might not be as lucky as others. If you're beginning to reach wits' end hunting down reliable financing, you might think a bank loan may be the only option remaining.
Not quite. While businesses turn to bank loans to raise necessary funding, caution must be exercised by those who do. According to The Wall Street Journal, banks typically require collateral before signing onto a loan, most likely around 20 percent of whatever they've agreed to invest. And that's only if they consider your franchise choice viable. These institutions prefer established businesses with several locations over a franchise with only one.
Instead, the right equipment financing companies will work with you to formulate a payment plan for your franchise, no matter the size of your operation. These lenders offer comparable financial options without a lot of the hassle from banks or other loan providers. Third-party equipment financiers can offer just as much money as a bank along with manageable rates and flexible contractual terms. Some may even pre-approve your venture based on your franchise choice.
Equipment and franchise industry piece brought to you by Marlin Equipment Finance, a nationwide provider of commercial lending solutions for small and mid-size businesses. Marlin's equipment financing and loan products are offered directly to businesses, and through third party vendor programs, which include manufacturers, distributors, independent dealers and brokers in the security, food services, healthcare, information technology, office technology and telecommunications sectors.