One of the most important aspects of opening a franchise is usually the least enjoyable. Figuring out how to finance a franchise venture can cause many headaches and sleepless nights, and creates plenty of questions without simple answers.
Fortunately for today's potential franchisees, financing is much easier to find than it was just 20 years ago. Many of today's lenders understand the special needs of franchisees seeking financing, and many have targeted franchisees as a growing, desirable market.
Just ask franchisee Doc Cohen. When he sought financing for a Great American Cookie Co. franchise in 1978, lenders were anything but receptive.
"Cookies were a relatively new retail concept, and the bankers would laugh at me and say, `You want us to lend you money to sell cookies? Do you know how many cookies you need to sell to pay the rent?' "
Cohen is the one laughing now; he owns 28 Great American Cookie Co. franchises, from Colorado to Florida. "There's a lot of dough in cookies," he says. "All my stores are doing really well."
Cohen couldn't get traditional financing to open his first store, but he did manage to raise $35,000 from family members and personal savings accounts. By gathering more than half his start-up costs, he proved to an equipment leasing company he was serious about the venture, and they granted him a $30,000 equipment lease.
After six months, business was phenomenal for Cohen. With a proven track record, he was able to go to his local banker and get financing for his second store--and the 26 after that.
AT&T Capital Corp., an international provider of leasing and financing programs for a wide range of businesses, introduced a franchisee lending program in April called Franchise One.
"We look at franchisees as a separate market with a distinct set of needs," says Bob Neagle, senior vice president of marketing and business development at AT&T Capital Corp. in Morristown, New Jersey. "We find franchisees desirable as recipients of loans, because the franchise market continues to grow. And not only do franchisees need start-up assistance, they will continue to need assistance as they grow."
With an established franchise, franchisees have an easier time finding financing than independent business owners do, says Don DeBolt, president of the International Franchise Association (IFA) in Washington, DC. "A franchisee has a more bankable loan than the independent businessperson, because the franchise has a track record," he says. "Banks track all loans, and the default rates are lower with franchises than with independent businesses."
Funding for your franchise can come in a variety of forms, including help from the Small Business Administration (SBA), bank loans, a franchisor that offers financing or one that refers franchisees to lenders that understand their needs. Before you obtain any financing, however, you'll need to consider some of the questions every lender asks and the items they'll require.
Julie Bawden Davis profiled nine mobile businesses in the August issue of Business Start-Ups.