Franchise Buying Guide

Uncommon Currency

You really, really want a franchise. But you just don't have the money to buy one. Where can you turn? We hear franchisors have some tricks up their sleeves.
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Stanley Wong enjoyed taking his family to the International House of Pancakes. So when he began pondering his business future, Wong wondered whether the family restaurant chain could provide the opportunity he was looking for.

The bad news: At the time, Wong was a 28-year-old self-employed grocer without any substantial savings, so the possibility of buying a franchise seemed pretty hopeless. The good news: IHOP had put together a special financing program for its franchisees, which included building and equipping the restaurant, then leasing the restaurant and equipment to the franchisee.

"Everybody comes to America with a dream of being a success," says Wong. But that American Dream comes with a price. For those who may equate success with buying a franchise, the start-up costs and franchise fees can be prohibitive. But a growing number of franchises are offering innovative financing programs that help their prospective franchisees' dreams become reality.

For example, when Wong opened the first IHOP franchise in San Francisco in 1967, the franchise fee was $40,000. It wasn't a problem that he had only $10,000 to invest--IHOP's finance program allowed him to finance the rest of the fee over an eight-year period. "That really helped us out," says Wong, "because we didn't have a lot of money and were finding it very difficult to get financing [elsewhere]."

Today IHOP finances 80 percent of the franchisee's franchise fee as well as 100 percent of the leases on the building and equipment. The goal? To give more people the opportunity to own a business. "We're looking for people who are willing to work hard and are capable of being a good restaurant operator," says Alan Unger, the franchise's CFO. "We're not looking for people with previous significant restaurant success who can afford to build, develop and finance restaurants on their own."

Wong certainly fit that bill. With financial backing from his franchisor and after the success of his first IHOP, he eventually opened 22 more restaurants in California, Idaho and Utah.

Though Wong's balance sheet is certainly more impressive today than it was 30 years ago, and he now has the capability of being funded by any number of lenders, he continues to get his financing through IHOP. "I've had more of a relationship with them over the years," Wong explains. "They have integrity--that's one of the big reasons why I'm still with IHOP."

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This article was originally published in the June 2002 print edition of Entrepreneur with the headline: Uncommon Currency.

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