Ramping up a new franchise can be held back by a single major roadblock: getting approved for the necessary business loans to open new sites. Yet, with the right preparation and approach, tapping funding can be smoothly accomplished with the proper foundations in place, even without prior entrepreneurship experience.
Having worn multiple hats – including that of a franchise lawyer and a seasoned consultant – Upside Franchise Consulting Group has developed a distinctive perspective on the financing process, recognizing the pivotal moments where law and operations intersect. For hopeful franchisees, employing these vital tactics paves the runway to loan approval:
Lead with Strong Personal Credit
While lenders factor in the stability of proven franchise systems when assessing applications, at the end of the day, debt gets issued in the would-be owner’s name. All financing starts with candidates demonstrating pristine personal credit management, conveying financial responsibility. Start monitoring and optimizing your credit score for at least a year before needing funding.
Have Skin in the Game
The more capital franchisees personally bring as a down payment upon financing – the more favorably banks perceive the risk levels of loans. Bringing your own “skin in the game” evidences your commitment to success and keeps repayment liability lower relative to income for lenders’ comfort.
Seek Out Franchisor Programs
Many corporate franchisors have cultivated partnerships with banks and credit unions to provide preferential financing to new owners of units after vetting concepts. These programs pre-negotiate more flexible terms, lower rates, and faster approvals that wouldn’t be extended to experimental startups. Leverage what headquarters has already secured for franchisees.
Prepare Documentation Meticulously
Banks and the SBA expect painstakingly detailed applications outlining startup budget needs, showing carefully researched numbers broken down by cost centers, three years of personal tax returns evidencing stable income to service debts, personal financial statements tallying existing assets/liabilities, and proof of adequate collateral or guarantees.
Keep Dialogue Transparent
Proactively informing lenders of any shifts in your employment status, household income levels between applications and closing, major purchases or repairs needing additional credit, or tweaks in the proposed business plan or location details requires transparency to retain trust and avoid last-minute snags jeopardizing approvals.
With prudent financial preparation and transparent dialogue, franchise deals provide the infrastructure for success, coupled with prudent lending positioning to secure startup funding – allowing more entrepreneurs to pursue ownership supported by franchisors and lenders mutually invested in their prosperity. Contact Upside Group to start that journey today.
