The business bug has bitten and you’re a step away from realising your dream – running your very own franchise. But before you prepare for your first customer and the atmosphere of your new store, there’s a hurdle to handle: Financing the purchase of your new business.
But lending has become tougher in the current economic climate, whether you’re starting out, or seeking funding for franchise growth. This, however, doesn’t mean there’s no chance of getting finance for your venture.
“Your ability to be successful with a franchise ultimately depends on your capability to fund the franchise,” says Sam Edwards, digital marketing strategist and speaker.
“And unless you’re sitting on a sizable nest egg that you’re comfortable giving up, it’s going to have to come from a third-party.”
There are a wide range of options for you to consider as viable funding methods, from banks to your franchisor and even a like-minded entrepreneur looking for the same opportunity:
1Apply for bank finance
Some banks have a specialised division for franchising, but you’ll be hard-pressed to find a bank to lend you the money you need without the details on how you plan to run your business and what your plans and projections are for its future. A business plan is an essential requirement for going into business.
It should have details such as:
- A background on the business
- The strategic vision and goals of the business
- The financial projections detailing how the business will reach its goals.
Banks also want to see that you’ve taken some risk in launching your venture. Being willing and able to contribute some cash of your own demonstrates your commitment to the business and your ability to handle your financial matters.
2Talk to your franchisor
Although franchises typically won’t finance the entire start-up, the franchisor can offer between 15% and 75% of the capital requirement because they see your capital investment as a sign that you’re serious about the business.
Start the process by consulting an in-house financing expert to find out whether your franchisor will fund the entire start-up cost or offer financing for portions of the entire cost.
“They may have financing plans for equipment, the franchise fee, operational costs or any combination thereof,” explains Roberts.
If your franchisor assists with acquiring equipment, they can make arrangements for you to lease the equipment necessary to run the franchise. Since equipment often adds up to between 25% and 75% of your total start-up costs, this method of finance can be a significant part of the support.
3Pair up with a partner
Tsehpo Maboa and Andrew Sehata partnered to buy their first Engen franchise in 2009 and have since acquired a second location. It started with a passion for entrepreneurship and a lack of capital to make it a reality.
“I attended a lot of seminars and used any information I could get my hands on,” says Maboa.
“The capital required is high, especially the unencumbered funds, so when Andrew told me he needed a partner for an Engen franchise offer he had been offered, I was already looking around.”
Splitting the capital investment means splitting profits at first, but like Maboa and Sehata, you could end up with more than one location, doubling your revenue.