Franchise Buying Guide

Treasure Hunt

Collective Effort
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Teresa and David Pouppirt (29 and 32, respectively) of Gresham, Oregon, followed that advice after their loan application was rejected by numerous banks, among them Key Bank. "We filed for bankruptcy against Key Bank nearly 10 years ago," Teresa confesses, pointing to the likely reason for the couple's loan application rejection.

To assemble the $115,000 needed to purchase a Precision Tune Auto Care franchise, the couple called in all their resources. "[We] borrowed $25,000 from David's aunt, withdrew $10,000 from his pension fund, took a $15,000 second mortgage on our home, and borrowed the balance from Phoenix Leasing," says Teresa. She has only one tip for loan applicants: "After filing bankruptcy against a bank, don't apply there for a loan."

Jay Froman, owner of Business Capital Resources (BCR) in Clovis, California, has another tip, which was reiterated by lender after lender: Do your homework.

"If you're committing the major portion of your assets to a business, you need to fully understand what that business is about," says Froman. "Research the opportunity and the market. Ask pointed questions of the franchisor. Study the UFOC [Uniform Franchise Offering Circular]. Call other franchisees to learn about their experiences, their actual start-up costs, operating costs, income, and the support they're getting from the franchisor. Then call a lender or a broker, explain your situation and ask for guidance." (For more on researching a franchise, see "Now You're Cooking".)

Using a broker to arrange your loan, as Froman did for the Pouppirts, is one of several recommendations Loretta Dodson, senior area development specialist at Precision Tune headquarters in Leesburg, Virginia, makes to franchisees. "Brokers can steer new franchisees in the right direction for their situation, recommending an SBA loan when it's fitting or an equipment lease if the buyer has funds to cover everything else," Dodson notes. "Not only do brokers do most of the work for borrowers, but they also [facilitate] the process for [franchisors] because they're familiar with our systems."

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This article was originally published in the January 1999 print edition of Entrepreneur with the headline: Treasure Hunt.

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