Funny Money

Dangers Of Using A Credit Card

Luxury Bath Systems franchisee Bernie Mexicotte repaid his $75,000 credit card debt in 24 months, though at higher interest rates than those paid by Stringer. Despite his success using plastic, Mexicotte warns, "It's not for everyone. Use credit cards only if you have the ability to manage that kind of debt. Otherwise it's too easy to get jammed up. Too many Americans use their credit cards to the hilt, get a second mortgage to pay off that debt and go right back and max out their credit cards again. You can't do that in business."

Mexicotte admits he still uses his credit cards, "constantly juggling balances from one card to another to avoid interest or to take advantage of a $10,000 deal at interest rates of 2.9 or 3.9 percent. But I'm diligent. I watch the due dates carefully. A better strategy would be to develop personal relationships at a local bank before you need a loan. When you get somebody who believes in you, that will carry you well beyond your needs."

But relationships don't always work. Jo Ann and Robert Foley had developed banking relationships at BB&T, where they'd been loyal customers since they married 27 years ago. But when they applied for a $27,000 loan to open a Curves for Women franchise, the bank dragged its feet. "In 1996 I lost my job at Proctor Silex when they sent the jobs to Mexico," says Jo Ann. Neither she nor Robert, a textile mill worker, "had any business experience, college education or assets to speak of," she says. "Besides, [the bank] didn't want to take a chance on an unproven franchise."

Unacquainted with other types of financial institutions, or any options, for that matter, the couple followed the bank's suggestion and met with a local community college counselor. "He helped us put a business plan together. We took it back to the bank, but they still weren't satisfied. They wanted all kinds of documents and had us fill out forms. They even demanded titles to our cars and insurance policies," says Jo Ann.

15 Fast Franchise Financing Tips
1. Talk to your franchisor before searching for outside financing; get approved or pre-qualified.
2. The most common source of start-up capital is friends and family. Use them.
3. Seek out lenders who understand not just small business but franchising as well.
4. Be totally honest and upfront with lenders. Hide nothing. Be prepared to explain everything.
5. Neatness counts. Fill out your credit and loan applications clearly. Typed is better.
6. Don't weigh down your loan application with documents.
7. Don't exhaust your liquidity by paying off outstanding debts before filing a loan application. Lenders want you to have capital.
8. If you lack liquidity, find a partner with money.
9. Consider equipment leasing to conserve start-up capital and improve the appearance of your balance sheet.
10. Keep debts and expenses to a minimum. Many business owners take on too much debt, forgetting that cash flow must pay that debt.
11. Consider buying used equipment, furniture, vehicles, etc.
12. Let your fingers do the walking on the Internet before wasting time, energy, gas and phone calls. You'll find useful information. Some sites even allow you to file loan applications online.
13. Don't overlook angel investors and venture capitalists. Many have cooled to the high-tech sector and are seeking alternative investments.
14. Avoid dipping into your retirement money or your kids' college funds. Any start-up-even a franchise-is a risk.
15. Don't give up. Some Web sites offering financial information, assistance and/or access to funding:

AMRESCO Inc.:www.amresco.com
Business Lenders LLC:www.businesslenders.com
Center Financial Leasing Inc.:www.centerfinancial.com
The CIT Group:www.citgroup.com
Commercial Capital Corp.:www.commercialcapitalcorp.com
The Entrepreneur's Source:www.franchiseamerica.com/entrepreneurssource.htm
The Finova Group:www.finova.com
Franchise Finance:www.franchise-finance.com
FranNet:www.frannet.com
Global Financial Services:www.globaleasing.com
Lobo Financial Systems:www.lobofinance.com

Contact Sources

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This article was originally published in the January 2001 print edition of Entrepreneur with the headline: Funny Money.

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