Franchise Tips

Financing your Franchise Outlet

In order to receive financing, a business must apply for the credit to a source such as a bank, commercial lender or leasing company. With proper planning and guidance, you can greatly influence the financing institution’s decision on whether or not to extend you the amount of credit on the terms you desire. Since the credit source most likely knows little, if anything, about your business, it is your responsibility to educate them and get them to look favourably on your application.

Have a Business Plan

A well conceived, comprehensive business plan is crucial. You must clearly and convincingly communicate what you intend to accomplish and how you plan to achieve your goals. The experience of writing the business plan forces you to become more focused about your specific business.

Be Complete and Thorough

A lender will give you an application to complete. Answer all the questions with ACCURACY and DETAIL. Do not leave any questions unanswered. In most cases, your application and supporting documents are the only information provided to a potential creditor to assess your application.

If you do not show adequate attention to detail and provide all the information requested, why should the lender think you are going to pay enough attention to ensure your business succeeds. The process may seem tedious at times, but everything is requested for a reason.

A complete application will also be processed faster; while an incomplete one will get laid aside for later follow-up. In which pile would you rather have your application?

Know how much you need and for what purposes. Be specific. It is up to you to know these things, not the lender to guess.

Be Realistic

Optimism is expected, but unrealistic expectations create scepticism. Explain how you will use the financing requested and how it will benefit the business. To avoid losing credibility, do not make exaggerated claims.

Show How You Will Pay the Loan Back

Include repayment schedules in your financial projections. Your likelihood of repayment is the ultimate consideration in evaluating your request. Collateral is important, but lenders would rather have assurance that you are able to repay the loan. Prove, on paper at least, that you can generate the revenues to cover your operating costs with enough left over to pay the loan and your living expenses/salary.

Cover the Downside

Most businesses do not operate exactly as planned. Identify any weaknesses or potential problems in your business and create contingency plans to rectify these instances if they occur. Include an exit strategy.

Put Yourself in the Lender’s Shoes

Lenders want to issue loans that will be paid back. They will evaluate your personal and business credit history, your ability to repay based on credible financial projections in your business plan, and your collateral, among other things. If you were a lender, would you give your business this loan? Do not submit your application until you can answer ‘Yes’ with confidence.

Be Persistent

If you application is rejected, don’t give up. Be sure to ask the lender the specific reasons as to why your application was denied. This gives you an opportunity to fix whatever was lacking. If you have put an honest, thoughtful effort into your search for financing, people will help you get it. That includes people you may be tempted to blame for not approving your request. Don’t think “rejection” think “constructive criticism”.

Frame Of Mind

Obtaining financing is not easy. Learning how to prepare a business plan and financial projections can be time consuming and frustrating - but a key point is you are learning. The knowledge you gain in the process will be invaluable to you in the constant refinement that any business undergoes in both the planning and operational stages.