Top Trending: Stop Calling Everyone an Entrepreneur --They Aren't

Money Hunt

Cousin's Subs franchisee reveals how he financed his franchise.
  • ---Shares

The second biggest question for a prospective franchisee (it comes right after Which franchise should I buy?) is, Where do I get the money to fund my franchise? We asked Stuart Johnson, 34, a Cousin's Subs franchisee and area developer in the Minneapolis/St. Paul Twin City area how he tackled the issue.

Franchise Zone: What financing avenues did you pursue when you were planning to purchase your first Cousin's Subs franchise?

Stuart Johnson: In 1997, we bought an existing unit that was a poor performer, so we got in cheaply. We were able to finance it through an SBA loan, which required 30 percent down on the transaction. I borrowed money from my family to help finance the 30 percent.

FZ: What has been the biggest challenge you've encountered so far with the financing process?

Johnson: We've grown very fast in the last three years, and we're finding it difficult to sell a bank on our fourth store because, while our cash flow is very strong, our debt-to-equity ratio is as high as 12:1. For us to grow at the pace we need to, we must pursue alternative financing institutions that lend based more on cash-flow performance than more traditional considerations.

FZ: You mention alternative financing options as opposed to more traditional ones. What do you see as some of the benefits of each?

Johnson: The SBA process is great for entry-level, start-up companies because it gives the bank a great deal of security. For a person who already has an existing business, however, I would suggest taking a look at alternative financing options based on cash-flow performance. Also, people should look to smaller community banks in addition to larger ones because the SBA process can bring along some hefty fees-1 to 3 percent in my experience.

And if you're trying to find alternative sources for financing, check out "In The Money," and see how these five franchisees raised their start-up capital.

Next Article:
Sleep In and Make Millions: Why You Don'...
OK

This website uses cookies to allow us to see how our website and related online services are being used. By continuing to use this website, you consent to our cookie collection. More information about how we collect cookies is found here.