Franchoice Offers Franchise Financing Tips for a Tough Economy
EDEN PRAIRIE, MN – (November 11, 2008) Despite what you hear on the news about money being tight there are still plenty of ways to finance a franchise purchase, said Jeff Elgin, CEO of FranChoice, Inc., a national consultant company that helps individuals find their ideal fit in a franchise business. “Financing will always be a crucial part of the process of becoming a franchisee and what you can afford – or borrow – will determine which businesses you focus your research on,” said Elgin. “The more you know about the various sources for finance help, the better decision you will make when it comes time to buy your business.”
The current economic situation has impacted the franchise financing process in a number of ways. “One change we are seeing,” said Elgin, “is that it can take longer to process your financing. For that reason, we recommend to our franchisee candidates that they being the process even before they start looking at individual business to buy.” Another change is that lenders, once they approve you for a loan, want you to move on it more quickly. “Lenders are not going to leave credit commitments out there for weeks or longer. If you don’t take the money, they will lend it to someone else,” said Elgin.
Elgin suggests these tips for navigating the turbulent financial waters of the current economy:
Home equity financing, which was once a popular source of franchise lending, is more difficult to obtain these days. With home values falling, your lending institution may not be willing to loan you the money you need. It’s still worth checking, particularly if you have a good relationship with your bank. Also, check out The Small Business Association (SBA) which guarantees loans for qualified individuals. One of their terms is that you must have some of your own money to invest.
You may also consider investing some of your retirement savings. An IRA or 401K account can often be used without incurring penalties. If you consider this as an investment in yourself, one you have control over, and compare it to what your retirement account is currently earning, this may be a good option.
If you are an honorably discharged military veteran, there are programs that may help you financially. VetFran is a program started by the International Franchise Association as a way to give back to those who have served in the military. More than 300 franchise companies participate and will offer substantial discounts on fees and expenses to those who served our country. Also, there’s a government-established program called the Patriot Express Pilot Loan Initiative, whose purpose is to guarantee up to 85 percent of a loan made by a lending institution to a veteran or someone currently in the military and close to retirement. (Check the SBA website for eligibility requirements.)
MinorityFran offers incentives such as fee reductions to assist members interested in increasing the number of minorities in franchising. Check out the IFA website for more information at www.franchise.org.
Another financing option is to work with a company that specializes in facilitating franchise financing, such as Guidant and FranFund . They can help you decide between a number of options or combine them into one loan package.
Keep in mind that your credit score is likely to be scrutinized even more carefully in the current economic environment. You’ll probably need a credit score above 700 so if that’s not the case, try to improve your score before trying to finance your business.
No matter which type of loan you use to finance your business, you’ll be required to pay a part of the costs in cash. This can come from savings or perhaps severance pay from a corporate job.
The best advice for planning for your franchise financing, according to Elgin, is to be very organized and prepared before you begin the process. Lenders will want to see your loan proposal including how and what the loan will be used for and why it is needed. You will need to provide information about yourself and information about your company’s products and the market you will serve. The more research you have done, the better prepared you will be to find financing for your new franchise opportunity.
FranChoice is a national network of consultants dedicated to helping consumers find their ideal match in a franchise business. Since 2000, FranChoice consultants have helped over 40,000 people identify and investigate the perfect franchise for them through their free service. For more information, go to www.franchoice.com.