Analyze This

Money Hunt

The biggest challenge most people face in purchasing a franchise is finding the money necessary to build the business. Here are some starting points:

  • SBA-backed loans. This lending program has launched more franchises than any other in history. Talk to your bankers about whether you qualify to secure an SBA-backed loan for your franchise.
  • Family equity. Even if you locate financing, you'll need to inject a slug of "equity" into the business. Check your own resources. What do you need to pay your bills every month? Do you have friends and family willing to invest in the venture?
  • Venture capital. Venture capitalists have been busy the past few years trying to keep up with Internet start-ups. If you approach a venture capitalist, be prepared to provide every last detail of your proposed business and business plan, and be willing to give up as much as 50 percent of your business in return for the investment.
  • Angels. An angel investor is a wealthy individual who is not a professional venture capitalist. He or she has investment money in hand and is looking for a financial home run, or at least a better return than can be expected from the stock market. Angel investors look for annual returns of at least 25 percent. They're often patient, long-term investors who have witnesses the birth of thousands of entrepreneurial ventures.
  • Incubators. Be on the lookout for incubator programs in your community. They're typically privately owned or sponsored and underwritten by a university. An incubator program offers inexpensive office space and services, as well as introductions to the venture capital marketers, who are often seeking an equity position in return.

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This article was originally published in the January 2000 print edition of Entrepreneur with the headline: Analyze This.

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