HOW AND WHERE TO GET MONEY FOR A FRANCHISE IDEA

HOW AND WHERE TO GET MONEY FOR A FRANCHISE IDEA

How often have you thumbed through a business opportunity magazine, noticed a franchise

opportunity advertisement, and felt you'd really like to get in on that...if only you had the money? If

you're like most who are seeking greater opportunity and wealth, this probably happens with you

more often than you care to admit, except perhaps in strictly private conversations.

When the average person sees one of these opportunities, or comes up with a similar idea of his

own, the problems of start-up capital may seem formidable. But in reality, they may not be. In fact, just

about anyone with a good credit record and an "insider's sense of business" can get the capital he or

she needs, whenever it's needed. The secret is in knowing how to put together a proper proposal,

and to present it to the right per son. These are the "how-to" instructions we're going to give you in

this report.

The first thing you're going to need is a complete business plan. This is a complete and detailed

description of exactly how you intend to operate the proposed business. Your business plan should

detail precisely the product or products you plan to sell; how you're going to produce or manufacture

the product; your costs (inventory costs if you're purchasing them from a supplier); who is going to sell

those products for you; how they're going to be sold; the attendant costs; when you expect to recoup

your initial investment; your plans for growth or expansion; and the total dollar amount you're going to

need to make it all work according to your plan.

Your business plan must be detailed - complete with projected income and expense figures - through

at least the first three years of business. For more details, and "how-to" instructions, see our re port,

HOW TO PREPARE A PROF IT ABLE BUSINESS PLAN, report #3503.

Now, assuming you have your business plan all worked out, put together and ready for presentation

with your request for capital, let's talk about your capitalization proposal. First, keep in mind that

whenever you ask somebody for money, whether it's for a small personal loan or a large amount of

money to finance a business, you're involved in a selling situation. You have to prepare a "sales

presentation" just as if you were getting ready to sell an automobile or refrigerator. Within this sales

presentation you must have all the facts and figures; you must anticipate the questions and the

possible objections of the prospective lender with answers or explanations; and you must "package"

it as impressively as you would yourself for an audience with the president of IBM or General Motors.

The more money you ask for, the more "in-the-know" will be the people you want to borrow from, and

so the more detailed and organized your proposal must be. This shouldn't cause you too much worry

however, because you can hire a CPA to help you put it together properly, once you've got the facts

and have a business plan he can work from.

Look at it this way: The more money you request for your business, the more your lenders or

prospective investors are going to want to know about you, your planning, and your business. They

want to be impressed with the fact that you've done your homework; they want to see that you've

researched everything and documented your facts and figures; they want to be assured by your

presentation that investing in your business will make money for them. It's just that simple at the

bottom line. Unless you can instill confidence in them with your business plan and loan or investment

proposal, they're just not going to give much positive thought to your request for capitalization.

So you'll need a balance sheet describing your net worth - the worth of what you own compared to the

amount of money you owe. You'll also have to prove your stability and money-management talents

relative to how successful you've been in paying off past obligations. If you have had credit problems

in the past, get them "cleaned up", or at least explained on your file at your local credit bureau office.

Under the law, credit bureaus are required to give you all the information they have about you in their

files, and it's your right to correct any errors or enter explanations regarding negative reports on your

credit. Do this without fail because prospective lenders or investors will definitely check your credit

history.

So, now you have your balance sheet prepared; your credit history organized in a light that's favorable

to you; your business plan (with costs and income projected over the coming three years), you're

ready to start looking for lenders or investors.

Almost all franchisors offer help in setting up with one of their franchises. Most will go out of their way

to assist you in getting the financing you need. Some will lend you the entire amount, with payments

coming out of the income they expect you to make from their franchise operation. Many will carry this

loan themselves, while others will carry part of it and find you a lender to finance the remainder.

Franchisors have two objectives in mind when they offer franchises to the public: They are trying to

expand their operation, thus increasing their profit, and they are trying to raise capital for themselves.

Generally speaking, if you have a good credit history, and if they feel you have the necessary

business personality to achieve success with one of their operations, they'll do everything within their

power to get you in a franchise outlet. Keep this in mind the next time you see an advertisement for a

promising franchise opportunity requiring a substantial amount of cash outlay. You don't necessarily

have to have all the money. They want you, and they'll help you!

Many people seem to be unaware that most of today's largest corporations started on a shoestring -

on borrowed money. Many people seem to feel that unless they've got it all "in hand" in savings, then

they'll just have to keep plugging away until they can save up enough to take the big plunge. Nothing

could be farther from the truth. Just a quick bit of research will show that 999 out of every 1,000

businesses were begun on borrowed money.

Look to your family and friends for financial help. Approach them in a business-like manner; tell them

about your idea or plans, and ask them for a loan. Agree to sign a formal statement to pay them back

in three, five or ten years, with interest.

When you have your proposal assembled, you might even want to think of a limited partnership or

even a general partnership arrangement as a way to finance your project. In any kind of partnership,

each partner shares in the profits of the company, but in a limited partnership, each person's loss

liability is limited to the amount of money he initially invested. The truth is, in this kind of a situation,

you'll be doing all the work and sharing your gain with your partners, but then it's a fairly sure way to

obtain needed financing.

Another common method of obtaining business financing is through second mortgage loans on a

home or existing piece of property. Say you purchased a home ten years ago for $35,000, and today

the assessed valuation is $85,000, with a mortgage of $25,000 still outstanding. A lender may

consider your home to be security or collateral for a loan up to $60,000. In many instances, this is the

easiest and surest way of getting the money needed for franchise or other business investment. And,

it makes sense; you've got "net worth" available that is doing nothing but sitting there. Take this

equity and invest it in a worthwhile business, and you could double or triple your net worth each year

for the rest of your life.

Deciding to obtain a second mortgage on your home in order to finance a business opportunity is

without doubt a major decision, but if you are sure about your investment project, and are determined

to succeed, you owe it to yourself to go ahead. You could incorporate yourself, borrow money from

your family through a second mortgage on your home, and protect against the loss of your home

through the Federal Home stead Act. The important point here is that all business opportunities

involve risk and sacrifice. It's up to you to determine the feasibility of your success with your

proposed venture, then decide on the best way possible to proceed.

In every instance where you run into reluctance on the part of a lender to lend you the money you need,

explore the feasibilities of "two-name" or "co-signed" loans. You can have the franchisor sign with

you, or one of your suppliers, a business associate or even a friend. Oftentimes you can borrow or

rent collateral such as stocks, bonds, time certificates, business equipment or real estate, and in this

way give greater confidence to the lender in you r abilities to repay the loan. Whenever you can show

a contract from someone who has agreed to purchase a certain number of your products or services

over a specified period of time, you have another important piece of paper that most lenders will

accept as collateral. Still an other possibility might be to get a bank or a firm that has loaned you

money in the past to guarantee your loan. They simply guarantee that they'll lend you money in the

future if ever the need should arise.

Going straight to you neighborhood bank, applying for a business loan and walking out with the

money is just about the most unlikely of all your possibilities. Banks want to lend money, and they

must lend money in order to stay in business, but most banks are notoriously conservative and

extremely reluctant to lend you money unless you have a "regular income" that "guarantees"

repayment. If and when you approach a bank for a business loan, you'll need all your papers in order

- your financial statement, your business plan, credit history and all the endorsements you can get

relative to your succeeding with your planned enterprise.

In addition, it would be a good idea to take along your accountant just to assure the banker that your

plan is verifiable. In the end, you'll find that it all boils down to whether or not the bank officer studying

your application is sold on you as a good credit risk. Thus you must impress the banker - not only

with your proposal, but with your appearance and personality as well. In dealing with bankers, never

show an attitude of doubt or apology. Always be positive and sure of yourself. However, don't come

on so strong to them that you're either demanding or overbearing. Just look good, know your stuff,

and project an attitude of determination to succeed.

Your best bet, in attempting to get a business loan from a bank, is to deal with commercial banks.

These are the banks that specialize in investment loans for going businesses, real estate

construction, and even venture programs. Look in the yellow pages of your telephone or business

directories; call and ask for an appointment with the manager; and then explore with him the

possibilities of a loan for your project.

One of the "nice things" about commercial banks is that even though they may not be able to approve

a loan for your business ideas, they will almost always give you a list of names of business people

who might be interested in looking over your proposal for investment purposes. A lot of commercial

banks stage investment lectures and seminars for the general public. If you find one that does,

attend. You'll meet a lot of local business people, some of whom may be able to and interested in

helping you with your business plans.

When you're looking for money to move on a business deal, it does not really matter where the money

comes from, or how it all comes about. It's important that you get the money, and at terms that are

suitable to you. Thus, don't overlook the possibilities of an advertisement for a lender or investor in

your local papers. Place your ad as well in national publications reaching people looking for

investments. Other avenues to seriously consider are foundations that offer grants, local dental and

medical investment groups, legal investment groups, business associations, trust companies and

other groups or organizations looking for tax shelters.

Basically, it isn't a good idea to go to a finance company or other commercial lender of this type for a

business loan. The most obvious reason is the high interest rates you have to pay. These

companies borrow money from larger money lenders, and then turn around and lend it to you at a

higher interest rate than they pay. Herein lies the means by which they make money from granting

loans to you. The more it costs them to provide the money for you, the more it's going to cost you to

borrow their money.

The only element in your favor when borrowing from one of these agencies is that most will generally

lend you money against collateral other lenders just won't accept. Insurance companies, pension

funds, and commercial paper houses are not too out of sight with their interest rates, but they

generally will not even consider talking to you unless you're requesting $500,000 or more. They'll also

pretty much require that your business proposal be backed by the best possible plan.

Finally, the bottom line is this: You must have a well-researched and detailed business plan; you must

have all your documents and projections put together in an impressive presentation; and then, you will

have to be the one who does the final selling of your proposal to the investor or lender. This means

your appearance, personality and attitude, because - make no mistake about it - before anyone lends

you any size able amount of money, they're going to want to take a close look at you personally before

they hand over the money.

Actually, the different ways of financing a franchise opportunity are as many and varied as your own

creativity. The sources of obtaining money are virtually limitless, and available to anyone with an

idea.

One word of caution before you jump into any franchise purchase agreement: The price you pay to

participate in a franchise operation is not always the total cost involved in getting the business off the

ground. With some franchise operations, you may find other costs such as down payments on the

purchase of property, building construction costs, remodeling or site improvements, equipment,

fixtures, signs, advertising, and training.

Virtually all franchise deals require that in addition to the purchase price or the license fee of the

franchise, you're required to give a certain percentage of your gross business income to the

franchisor, plus extra payments for promotion and administrative costs. Above all else, before you

get involved in a franchise, or any business venture for that matter, make sure you've conducted a

complete and thorough investigation of the opportunity presented. If it's a good deal, then go with it;

but if you have any doubts or feel as though you're getting in over your head, back off and look around

for something not quite so ambitious, or perhaps expensive.

There are a lot of good franchise opportunities, and some not so good. It's important that you be sure

of what you're investing in, and that you can make money with it. From there, preparing the proper

business plan and the necessary financing, while not always a snap, can be done. Now's the time to

do it! We wish you outstanding success with your franchise business.