Easy as 1-2-3: Financing Your Franchise
Business Solutions It’s one of the immutable facts of life when you’re building a business: Money matters.
You’ve got a rock-solid concept, the perfect location, a well-developed business plan---and you’ve done your due diligence. Now all you need is the financing and you’re set.
Before 2008, financing was fairly simple. Entrepreneurs looking for loans had fairly easy access to capital, with more lenient upfront requirements. But, according to Alisa Harrison, vice president, communications and marketing, IFA, since the financial crisis of 2008, there has been a “new normal,” in which credit is considerably tighter.
“It’s harder now, but people still get financing,” she says. Some tried-and-true sources include traditional bank loans, taking money from a personal 401-K, borrowing money from friends and family members or going to the Small Business Administration for a loan, which is often a last resort because of the tight restrictions and lack of flexibility associated with these loans.
"For franchisees, having a corporate franchisor behind them not only gives them day-to-day support, but broader reach financially."
Franchises are a good credit risk
Harrison and her colleagues at IFA have worked hard to educate lenders about the franchising model and help them understand that there is less risk involved, compared with a non-franchise, because of the level of support provided by the franchisor to franchisees. One group of lenders really gets it. Franchise financing companies understand the franchise business model and have well- developed relationships with corporate franchisors that allow them to extend financing opportunities to franchisees. And as alternative lenders, they also have the advantage of less rigorous regulations than traditional banks.
Fast, efficient financing
Since 1993, DirectCapital has provided financing to franchisees for franchise acquisitions, upgrades and remodeling, as well as money for new equipment or technology. Richard Henderson, vice president, Direct Capital Finance Group, explains, “We have a strong understanding of the franchise industry, including the goals of franchisors and the lending needs of franchisees. Franchisees appreciate our speed of service, and the fact that unlike banks, the process is quick and simple.”
While most companies seeking financing anticipate overwhelming complexity, DirectCapital has developed a simple process, including a one-page, online application for instant credit approvals up to $150,000, with larger amounts requiring more time and documentation.
For franchisees, having a corporate franchisor behind them not only gives them day-to-day support, but broader reach financially. Henderson says, “Our goal is to provide franchises with the capital they need to grow and stay competitive in the marketplace.”