What are the pros and cons of using a FranFund consultant?
The franchisor I've been working with has referred me to FranFund. I've reviewed their website. It appears obvious that there are fees involved. What should I look for to get the best value out of this service? Or, should I attempt to go it alone to get capital?There are a number of companies that provide services to assist people in terms of acquiring financing for their new franchise startup. In my experience, these companies are typically fee based, with the fees being paid in some cases by consumers and in some cases by the lending source. It's my understanding that when the fees are paid by the lending source, they are typically added to the cost of the loan in some form or fashion so you'll probably pay the fees out of your pocket in either case.
These services can be very helpful because they know the marketplace and can potentially find financing when individuals are unable to themselves. In the case of retirement program based financing (which has really taken off in the last decade) it is very important to make sure that all the rules and regulations are followed properly in order to avoid penalties. You'll want to make sure that you're assisted by someone who specializes in this type of transaction so all the legal docs are done properly.
As to the pros and cons, in my mind it comes down to whether or not their assistance is needed. If you are going to finance your new business by taking out a second mortgage on your house or something simple like that, I wouldn't pay any fees to anyone (including the origination fee at the bank, which is often negotiable). If you don't know how on earth you're going to get your financing arranged, it may be well worth the fees to get some help.
In any case, I would make sure that the fees you pay are success based fees--and by that I mean that you don't owe anything unless you get the financing. Beware of any company that asks you to pay a hefty fee for their service even if you don't get your loan.
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