Four financing options for entrepreneurs to consider as they prepare to launch…
With adrenaline surging through your veins, you simply cannot wait for the grand opening of your new franchise, but there are practical matters to contend with first. It is typical for franchisees to finance part or all of their new franchise upon purchase. Since there can be some restrictions connected to financing a new business, even a franchised business through traditional lending sources, the greatest source of information about financing options could be found by talking to your franchisor. The better selections among franchisors are more than happy to discuss financing and even help you obtain the necessary financing to finally turn your entrepreneurial vision into a fully-functional, operating business. Keep in mind, you selected your franchisor after lengthy research and much consideration and this is an issue that a resourceful and grounded franchisor has tackled many times before with other franchisees, so they will be a vital source of information in regards to workable options.
Sometimes, more traditional lending sources and programs are too stringent for new franchise owners, regardless of credit rating or the amount of collateral that one might bring forward to secure the loan. Considering that, there ARE viable financing options that your franchisor should be able to guide you towards and this is just one reason why finding the best franchisor is the absolute first step.
Be encouraged! Options are increasing and are varied
Matthew Peretz, Minuteman Press International Vice President, is now an experienced expert when it comes to assisting incoming Minuteman Press franchise owners as they enthusiastically work towards opening the doors of their digital print, design and marketing franchises. Matt shares, “Financing a franchise has become much easier in the past few years. This year, the SBA has lent out almost double the amount of money they did in 2010 on the 7(a) program. There are also multiple ways to pay for a business which means more and more people are qualifying to purchase a franchise. May people are leaving their corporate jobs to buy franchises. These folks typically have a 401k or IRA that can be used to purchase a franchise. Do you want to invest in somebody else’s company or your company?”
With any purchase, you do want to come out strongly and have to have good credit, show a sound work history, and have a good down payment. You should prepare to present a complete loan package including a personal financial statement, copies of personal tax returns for three years, and verification of the source of your down payment. This is common practice seeking a loan. You will also have to show collateral for the loan. You can also consider a loan backed by the U.S. Small Business Administration (SBA).
Kevin Wittal, Minuteman Press Regional Vice-President in Toronto, Canada, is able to advise new Minuteman Press franchise owners throughout the entire process of financing their franchise as well as other aspects of their new business. As his Canadian franchise owners launch forward to build their businesses, they are grateful that their Regional Vice-President is capable of helping them find financing options. Kevin touches on just a couple of ways people can find success financing their franchises, sharing, “Leasing companies can be used to finance equipment and other assets. Using the equity in your home is one of the most common methods of financing of business. Banks are very comfortable with this method, and will look to offer loans based on the equity in your home. This money can be used for start-up costs such as purchasing equipment, franchise fees, hiring new employees and the initial start-up phase of your business.”
Here are 4 more considerations for financing a franchise business:
1. Consider a Partner: Do you know someone, a relative, a friend, a former business associate, that would be a good candidate to back you with resources you will need to start up your business? Of course, you need to reconcile that this new partner will usually wind up owning part or possibly the majority of the business if they are investing the money. Still, take the time to consider potential business partners and discuss the idea with them to determine if the situation might work, ask about the amount of resources they might be able to invest, and if they would be willing participants. If you successfully select a business partner, it will allow you to pursue a franchise opportunity without delay since you can combine your partner’s assets with your own to meet whatever standards are dictated to start your business.
2. Consider Local Banks: You will need to have an outstanding credit history and rating plus impressive collateral before they really consider lending, but there are a number of local or regional banks that still make new business start-up loans. They are superior options to national banks which are simply not dishing out too many loans at this time. To go forward with this option, try to focus on developing a relationship with an individual banker, first. It helps to have someone in the bank feel as if he or she is your “ally” when it comes to arguing in favor of the loan. If you do not already have this type of rapport with a banker to use, see if you can tap into your network in order to get referrals from others who DO have such a relationship. It’s possible that being introduced to the right banker by someone already known and respected, you could find yourself with a banker willing to become a champion for your cause. While considering the bank-loan option, know it does have potential to be a long process, so plan on developing multiple possible sources to pursue simultaneously. This way, you will have some back-up.
3. Consider Angel Financing: A potential gem in terms of financing your franchise could be found by considering this option. There is a lot of money to be found by exploring “Angel” investors that can provide needed funds for your business start-up. It seems there is a respectable amount of money in the market pooling along the perimeter, just waiting for a good place to be invested. Why not your franchise? If you are able to find someone with these resources, assuming your credit is strong and you have nice collateral, this is a pretty straightforward process and you could find success with your pitch. Be sure to ask your franchisor about this option and seek options through referrals in your own network as well.
4. Consider Your Retirement Plan: If you built up healthy balances in your IRA, 401k or other retirement plans, there are programs available to you that allow you access to these funds in order to invest in starting your own new franchise business. For instance, your retirement account invests by purchasing stock in a new corporation you set up to own and operate your new franchise. As you franchise grows, your retirement account will realize gains based on its stock ownership, on a tax deferred basis.
Ron Rubin, Regional Vice-President in the New England Region for Minuteman Press International expands upon this option as he shares, “If an individual has a retirement fund, 401k, IRA, etc. my favorite method of funding is a ERSOP (Entrepreneur Rollover Stock Option Plan). This IRS approved plan allows an individual to access their retirement funds without paying taxes at this time or any penalties. There is a one-time fee and annual filing fees but both are usually less than the cost of a conventional loan and there are no interest or payback requirements. SD Cooper has one of the companies with an approved plan.”
David Rowley, owner of three Minuteman Press franchise locations (2 in Arlington, Virginia and 1 in Clinton, Maryland), offers the wisdom of experience to those investigating ways to finance their new franchises. David aligned himself with a seasoned franchisor whose primary mission is providing key support to its franchisors, including the critical and sometimes overwhelming stage when financing their businesses is necessary. David knows that a solid franchisor helps minimize stress by bringing real assistance to entrepreneurs at this critical stage.
He shares his thoughts on the issue, noting, “There are many ways to finance a franchise. See if the franchisor provides financing, first. A good franchisor will be able to assist you in getting the financing you need. Establish a good relationship with your banker – local community banks and credit unions can often be the best bet. Other options include getting a bank loan (quicker but less favorable terms) or a SBA loan (takes longer but a better deal) and talk to potential investors (friends, family, angel investors, etc.).”
David continues, “Using your existing 401K or other retirement plan as an investment tool by opening your company retirement plan and migrating your investments from where they are now to your new company. In a sense your company will be owned by your retirement plan and not you directly. Using your own money should be your last option.”
Beyond good credit, you will need to lead your franchise venture with a passion for building your business, starting with the wisest decision for your personal situation in terms of financing. Be encouraged! There are options enough to accommodate any number of different situations and more resources available for financing are becoming available all the time. The wisest first step to find your best options in terms of financing (and beyond) is always to secure a franchise opportunity with a respected, proven brand that boasts a healthy history of growth and satisfied franchise owners.
Learn more about Minuteman Press franchise opportunities including franchise investment & financing information at www.minutemanpressfranchise.com.