Items to Prepare Beforehand
Gaining the necessary financing for your franchise venture can be an overwhelming task, but preparing all of your documents in advance can help tremendously speed up the process. Different institutions will more than likely have varying forms and documents they need submitted. The following checklist will help you in gathering all of the paperwork that lenders may require to complete your application.
- Personal background: This includes educational and work history, criminal record etc.
- Business plan: All lending programmes require a business plan that includes, among other things, projected financial statements, balance sheet, cash flow statement, and income statement.
- Personal credit report: The lender will access your credit report during the loan application process. Remember to request a credit report from the national credit-reporting bureaus before you send the loan request form so you can review them for accuracy.
- Loan information: Specify the amount of money you’re requesting, the type of loan, how the loan will be used, and the amounts of assets you currently have.
- Business financial statements and income tax return statements for the past three years.
- Bank statements: Personal and business bank statements for the past 12 months.
- Accounts receivable and accounts payable for the past 90 days.
- Collateral: Some loan packages do not require collateral. But, if collateral is required, describe what will be used to secure the loan.
- Legal documents: Lenders may require additional documents, such as franchise agreements, business license/registration, commercial lease, articles of incorporation etc.
Financing Options
There are several options available to obtain the amount of money obligated for the costs of the franchise. Here are the most common avenues of financing:
- Financing directly from the franchisor
- Commercial bank loan
- Credit union loan
- Personal savings/Retirement fund
- Angel investor
- Family/friends
- Grant(s)
- Credit card(s)
Tips for a Successful Meeting with Lenders
Do
- Know your figures inside out. Have them checked and double checked. Asking the potential lender for a pencil while working out percentages on the back of a supermarket receipt won’t showcase you as the thoughtful and organised business person you are.
- If possible, bring an accountant or well-versed liaison/ representative from the potential franchisor. You will still need to know your business plan and financial documents by rote, but they have years of experience dealing with figures and accounts.
- Sell yourself. Include your CV and a small personal history about yourself. Explain why you’re passionate about this business model, your experience and your motivation. Convince the manager that this is the right franchise for you.
- Use the bank’s planning templates and documents. You can download these from their websites, or pop into your local branch to pick some up.
- Research what start-up grants and (if any) are available from the government. How much are they, have you applied for them? If you’re not entitled to a grant, why not?
- Prepare a worst-case scenario projection along with the more positive ones. Be honest with the lender and with yourself. If things turn for the worst you may be liable for a large repayment.
Don’t
- Forget to bring ID, a utility bill and three months of personal bank statements if you need to open an account.
- Ask for the entire amount required to start your business. The Wall-Street Journal reports that entrepreneurs generally invest 20% of their own money into the franchise.
- Be late, impolite, impatient, dirty or disorganised. No-one wants to deal with unorganised people. These are an instant turn-off. Act like you would on a first date (avoid playing footsie however…)
- Leave without arranging another meeting with either the manager or someone else in the bank. Hearing “I’ll be in touch” can often be the last words you hear before possibly receiving an impersonal rejection letter weeks later. Convince the manager that this is a great idea, and if he has any misgivings that you are prepared to work through them to produce a solid business model.
- Give Up. It is far more difficult to get a penny out of the banks for start-ups at the moment, so don’t lose faith if you don’t receive funding straight away. If you are rejected, arrange a meeting to discuss where the pitfalls were. Go back to the drawing board and revisit your research.