Franchise Buying Guide

Small Bucks

Options For Financing
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

What Price Success?

If lack of money, as opposed to shaky credit, is your problem, and friends and family definitely aren't an option, you can still make it happen. For example, consider Frisco, Texas-based Babies 'N' Bells. "The ideal candidate for our franchises is a new mother who, rather than going back to the workplace, wants the flexibility of working at home," explains founder Dara Craft. The company currently has 50 franchise units in a total of 19 states and specializes in customized invitations and announcements. The lowest estimated start-up cost is $18,600, including a $7,500 franchise fee.

"We don't check your credit, but look for evidence that you're responsible and have some financial ability," explains Craft, who says single mothers and divorced women with no job experience have been successful with her system.

According to Craft, Babies 'N' Bells even has a payout program in which franchisees are allowed to get started in their businesses and see early sales roll in before they have to start paying $1,000 monthly to cover the franchise fee.

Another option is microloans. Some banks and a number of nonprofit agencies lend up to $25,000 to single borrowers interested in starting businesses. But be aware that often the goal of such programs is to create jobs in specific geographic regions.

An additional source of financing is the franchise system itself. A handful of companies provide a degree of in-house financing to qualified franchisees. These include the medical staffing franchise Nursefinders, GNC vitamin stores, Radio Shack, 7-Eleven and White Hen Pantry.

The in-house financing program RadioShack offers was especially attractive to Lorenzo Max. He opened a RadioShack Select stand-alone store in the fall of 1997 in Tuba City, Arizona, which is on the Navajo reservation. He used $16,000 in savings accumulated from his satellite firm to finance his portion.

"Being on the reservation, I don't own the land," explains Max, whose store is located in the To'h na'nees dizi' shopping center built by the Navajo Nation's Division of Economic Development. "If [the store] hadn't already been built, I would have had to go through a lot of red tape with the Bureau of Indian Affairs [to get permission to build it]."

That's the hard part, adds Max, because banks are hesitant to finance-if he can't make a payment, the bank can't foreclose on the land, as reservation land has special protections. "If I was off the reservation, it would be easy. I'd buy the land, the bank would finance both the land and the building and, if I defaulted, they could just foreclose on me."

Max's location in a small reservation community was a good fit for the RadioShack Select program, which typically features a 500-square-foot store within a store. "Generally speaking, the towns [these stores] go into aren't big enough to support a full-line RadioShack. By co-branding with an existing successful business-video store, hardware, office supply, etc.-they're able to put our product into an already successful location," explains Len Clegg, senior vice president and general manager of franchise operations.

"The franchise store carries 1,900 of RadioShack's bestselling items, and the entire package costs about $60,000, with franchisees expected to put down 20 percent or $12,000," says Paul Crump, associate store marketing director. RadioShack typically finances the rest for three years at 10 percent simple interest. While RadioShack prefers co-branding, they're not averse to opening stand-alone locations, particularly if the potential franchisee has a strong understanding of retailing.

Loading the player ...

Shark Tank's Daymond John on Lessons From His Worst Mistakes

Ads by Google

Share Your Thoughts

Connect with Entrepreneur

Most Shared Stories