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How To Raise Money For Your Franchise
How often have you thumbed through a business opportunity
magazine, noticed a franchise opportunity advertisement, and
felt you'd really like to get in on that... if only you had
the money? If you're like most who are seeking greater opportunity
and wealth, this probably happens with 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. But 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 itís needed. The
secret is in knowing how to put together a proper proposal,
and to present it to the right person. These are the "how-to"
instructions we're going to give you in this report.
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; how you're going to produce or manufacture the product;
your costs (inventory costs if you're purchasing them from
a supplier); 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; and the total dollar 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 report, REORGANIZE YOUR TIME TO ACCOMMODATE A HOME-BASED
Now, 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 capitalization proposal.
First, 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. 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; you must anticipate the questions
and the possible objections of the prospective lender with
answers or explanations; and you must "package"
it as impressively as you would yourself for an audience with
the president of IBM or General Motors.
The more money you ask for, the more "in-the-know"
will be the people you want to borrow from, and so the more
detailed and organized your proposal must be. This shouldn't
cause you too much worry however, because you can hire a CPA
to help you put it together properly, once you've got the
facts and have a business plan he can work from.
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, your planning, and your business.
They want to be impressed with the fact that you've done your
homework; they want to see that you've researched everything
and documented your facts and figures; they want to be assured
by your presentation that investing in your business will
make money for them. It's just that simple at the bottom line.
Unless you can instill 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 capitalization.
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, and it's your right to
correct any errors or either 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 your balance sheet prepared; your credit
history organized in a light that's favorable to you your
business plan (with costs and income projected over the coming
three years), you're ready to start looking for lenders or
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, with payments coming 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 off franchises
to the public: They are trying to expand their operation,
thus increasing their profit, and they are trying to raise
capital for themselves. Generally speaking, if you have a
good credit history, and if 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. 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
Many people seem to be unaware that most of today's largest
corporations started on a shoestring - on borrowed money.
Many people seem to feel that unless they've got it all "in
hand" in savings, then 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. Just a quick bit
of research will show that 999 out of every 1,000 businesses
were begun on borrowed money.
Look to your family and friends for financial help. Approach
them in a business-like manner; tell them about your idea
or plans, and ask them for a loan. Agree to sign a formal
statement to pay them back in three, five or ten years, with
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. In any kind
of partnership, each partner shares in the profits of the
company, but 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, but
then it's a fairly sure way to obtain needed financing.
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 $35,000,
and today the assessed valuation is $85,000, with a mortgage
of $25,000 still outstanding. A lender may consider your home
to be security or collateral for a loan up to $60,000. In
many instances, this is the easiest and surest way of getting
the money needed for franchise or other business investment.
And, 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, but 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. 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. Oftentimes you can
borrow or rent collateral such as stocks, bonds, time certificates,
business equipment or real estate, and in this way give greater
confidence to the lender in your abilities to repay the loan.
Whenever you can show a contract from someone who has 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.
Still 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 nee should arise.
Going straight to your neighborhood bank, applying for a
business loan and walking out with the money is just about
the most unlikely of all your possibilities. Banks want to
lend money, and they must lent money in order to stay in business,
but most banks are notoriously conservative and extremely
reluctant to lend you money unless you have a "regular
income" that guarantees repayment. If and when you approach
a bank for a business loan, you'll need all your papers in
order - your financial statement, your business plan, credit
history and all the endorsements you can get relative to your
succeeding with your planned enterprise. In addition, it would
be a good idea to take along your accountant just to assure
the banker that your plan is verifiable. In the end, you'll
find that it all boils down to whether or not the bank officer
studying your application is sold on you as a good credit
risk. Thus you must impress the banker - not only with your
proposal, but with your appearance and personality as well.
In dealing with bankers, never show an attitude of doubt or
apology. Always be positive and sure of yourself. However,
don't come on so strong to them that you're either demanding
or overbearing. Just look good, know your stuff, and project
an attitude of determination to succeed.
Your best bet, in attempting to get a business loan from
a bank, is to deal with commercial banks. These are the banks
that specialize in investment loans for going 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.
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, 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
When you're looking for money to move on a business deal,
it does not really matter where the money comes from, or how
it all comes about. It's important that you get the money,
and at terms that are suitable to you. Thus, don't overlook
the possibilities of an advertisement for a lender or investor
in your local papers. Place your ad as well in national publications
reaching people looking for investments. Other avenues to
seriously consider are foundations that offer grants, local
dental and medical investment groups, legal investment groups,
business associations, trust companies and other groups or
organizations looking for tax shelters.
Basically, it isn't a good idea to go to a finance company
or other commercial lender of this type for a business loan.
The most obvious reason is the high interest creates 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. Herein lies the means by which they make
money from granting loans to you. The more it costs them to
provide the money for you, the more it's going to cost you
to borrow their money. The only element in your favor when
borrowing from one of these agencies is that most will generally
lend you money against collateral other lenders just won't
accept. Insurance companies, pension funds, and commercial
paper houses are not too out of sight with their interest
rates, but they generally will not even consider talking to
you unless you're requesting $500,000 or more. They'll also
pretty much require that your business proposal be backed
by the best possible plan.
Finally, the bottom line is this: You must have a well-researched
and detailed business plan; you must have all your documents
and projections put together in an impressive presentation;
and then, you will have to be the one who does the final selling
of your proposal to the investor or lender. This means your
appearance, personality and attitude, because - make no mistake
about it - before anyone lends you any sizable amount of money,
they're going to want to take a close look at you personally
before they hand over the money. Actually, the different ways
of financing a franchise opportunity are as many and varied
as your own creativity. 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, remodeling or site
improvements, equipment, fixtures, signs, advertising, and
training. Virtually all franchise deals require that in addition
to the purchase price or the 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. Above all else, before
you get involved in a franchise, or any business venture for
that matter, make sure you've conducted a complete and thorough
investigation of the opportunity presented. If it's a good
deal, then go with it; but if you have any doubts or feel
as though you're getting in over your head, back off an look
around for something not quite so ambitious, or perhaps expensive.
There a lot of good franchise opportunities, and 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. From there, preparing
the proper business plan and the necessary financing, while
not always a snap, can be done. Now's the time to do it! We
wish you outstanding success with your franchise business.
If this article is of use to you, please provide
a link back to Hoover Web Design http://www.hooverwebdesign.com.
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