Before getting laid off in 2000, Henry Niedzwecki had spent most of his career selling different types of equipment in the welded steel industry. After studying the job climate and evaluating other sales positions, Niedzwecki, 56, deduced, "I was not the right guy at the right time." He decided he would instead purchase a machinery-related business or franchise and stay within his comfort zone. He happened upon metal retail franchise Metal Supermarkets while searching online, and he set up a meeting with the franchisor. "They were the kind of people I've been doing business with the past 20 years," he says. "It was an immediate fit."
Using money from an inheritance, Niedzwecki's wife, Susan, covered the $35,000 Metal Supermarkets license fee. When it came to total startup costs, however, the franchisor estimated it would take about $250,000. The couple used savings and an IRA account to contribute about $90,000. Niedzwecki's brother-in-law had encouraged him to look into running a business and was willing to invest. With two other minor investors-his sister-in-law and his wife's aunt-they came up with an additional $60,000.
Niedzwecki got the remaining startup funds from a bank loan. Seeking $100,000, he found the regional and statewide banks weren't interested in such a small amount. While his community bank was smaller, Niedzwecki found their enthusiasm to work with him a draw. "My perception going into this was not that I was begging for money-it was, 'I'm starting a business, and I'm looking for a banking partner.'"
Niedzwecki took his attorney's advice and created an LLC to purchase the franchise, which opened in Nashville in 2002. "We structured an agreement whereby I was to buy a specified proportion of everyone's shares over a three-year cycle beginning this year," he explains. "Going into business with family is fraught with all sorts of perils. Have a strong but flexible agreement. It's not just a good idea-it's a necessity." Niedzwecki gladly reports his has stayed one happy family.
Having Fund Yet?
Frank Roth, senior vice president of global marketing for GE Commercial Finance, Franchise Finance, offers the following tips on finding franchise funding:
- Find out whether your franchisor provides resources to help you with financing. "Lean on the franchisor as much as possible," says Roth. "They know the unique situations, they'll potentially know the geography you're going to open in, and they have relationships with banks or finance companies."
- Visit your local bank. Roth points out that they may be more willing to lend to you based on your individual merits rather than evaluating the industry or strength of the brand. "Use one you have ongoing relationships with, and leverage that one way or another." Roth adds that any relationship with a financing entity, whether it's through a car loan, home mortgage or banking account, is a potential resource.
- Check out franchise finance lenders. Whereas banks and financial institutions typically "look at it as investing in the individual," says Roth, a franchise finance lender "is already familiar with the industry segment and the brand and would focus on that." He points out that franchise finance lenders might take on someone with less equity and more experience if they're comfortable with the brand.
For more information on financing your franchise, visit our franchise financing options page here.