Tips to improve your chances of securing franchise funding

08/06/2018 08:00 | Start a business

Franchise funding tips

If you're looking to secure funding for a new franchise unit, you're going to need to jump through many hoops to impress the lender. Here, we take a look at ten different ways you can improve your chances of securing the franchise investment you need.

Franchise funding - tips to secure it

1. Construct a clear and comprehensive business plan
The franchise business plan is one of the most important documents youll draft during the entire startup process. Essentially, its a means of selling your business proposal to the lenders and providing enough evidence to assure them that youre a secure investment. The business plan can be incredibly complex and needs to cover a wide range of topics, so its worth taking your time to get it right. If you need help creating the perfect document, take a look at our how-to guide that covers the entire process.

2. Be realistic about your business future
The vast majority of lenders will have accumulated years of experience handling lending applications. They'll understand what's a reasonable financial performance prediction and what is completely unrealistic. Consequently, it's vital that you don't over-estimate your business' potential. Be honest about what you believe and honest with your projections. Lenders will be far more accepting of those they believe aren't trying to fool the system or borrow more than they'll be able to pay back.

3. Be realistic about the level of funding you can expect
Similarly, its important to be realistic about the amount of funding you can expect from a lender. Going into a meeting at a bank and handing over a proposal for a sum that far exceeds what the lender is typically willing to hand out will likely result in a quick rejection. Do your research and try to find out what the average investment amount for a business of your size is. Make sure your borrowing request is proportional to the amount of revenue you expect to generate and dont demand the impossible.

4. Invest your own money
In most cases, lenders will require you to invest some of your capital in the venture, too. This is only to be expected. After all, why should they be willing to risk their own money, if you're not willing to risk yours? The percentage of the total investment you can expect to acquire from a lender will differ from business to business and lender to lender, but some mainstream banks are willing to finance up to 70% of your initial investment. Of course, this amount will depend on your specific circumstances, and the amount of potential a lender can see in your business.

5. Prove you have thought of everything
The best way to convince a lender that you're a safe investment is to demonstrate that you've got everything covered. Don't leave a stone unturned during your preparation and go into your meeting confident and informed, with all the required facts and figures at the ready, and a good understanding of how your business is going to make enough money to pay back the lender. Before the meeting, run through a list of potential questions with someone who also understands the process. Have them look out for moments when you appear unsure or hesitant, then revise these areas, so your meeting passes as smoothly as possible.

6. Learn to sell yourself
As well as selling your business proposition, youll also be selling yourself. As the manager and owner of the franchise unit, youll be the one whos responsible for bringing it all together and making it work. Consequently, the lender will want to know that theyre investing in the right person, as well as the right business. Make sure you give a little background information and mention your employment history, but always refer back to the franchise. Why does your previous job make you a suitable franchise manager? How has your education provided you with skills required to run a business?

7. Get advice from a funding expert
Though you could go it alone, its a good idea to take some advice from a franchise funding specialist. Your franchisor may provide one as part of your franchise fee, or you may need to look elsewhere, but a good funding expert can be invaluable.

8. Be adaptable
Though you may go into a funding meeting expecting a specific outcome, there's no guarantee that you'll walk out with the result you had hoped for. Lenders often turn down a particular funding proposal but suggest alternative arrangements. Don't discard these alternatives immediately and take some time to think them over. While they may not be ideal, they could soon prove the only way to get your franchise off the ground.

9. Look beyond traditional lenders
Banks arent your only source of funding. If youre struggling to convince them that your business is worth the investment, you may want to try looking elsewhere before you adapt your proposal. Explore the option of applying to a government scheme, find a specialist franchise lender, or begin asking friends and family whether they would consider investing. Just because banks provide the vast majority of franchise funding, doesnt mean theyre the only option.

10. Do your due diligence
Finally, its incredibly important that you do your due diligence before you sign any funding agreement. Just because you receive an offer of funding, doesn't mean you should immediately take it. Take your time and make sure you understand the precise terms of your agreement. Read the fine print, request legal advice, and return to the lender with any questions you may have.

To acquire funding for your franchise, it's necessary to do a great deal of research, to ensure all your paperwork is completed satisfactorily, and to know precisely how to sell yourself and your business. If you follow our top 10 tips, you'll find that your proposal is far more likely to receive the attention it deserves, and lenders will be more willing to invest.

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