Franchise Your Business With Solid Funding Options

by Charles White | Articles
5 minutes
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Franchise your business with FMS. FMS began its journey in franchise development in 2009, which in some ways had many similarities to the current marketplace for franchising which has been obviously impacted by COVID and the Pandemic. The irony of the franchise industry is that in many ways, the franchise business does better when the general economy is having trouble.

Almost like an inverse relationship between the job market and the entrepreneur market. When people lose jobs or have some difficulties finding employment at the level they would like or be accustomed to, they are more willing to accept the risk of becoming a business owner. So, back in 2009, the market was obviously incomplete turmoil with the financial and real estate collapse in full effect and the job market was about as bad as it could get.

From 2009 to 2012, the franchise industry saw some of the best growth percentages it had ever seen with the recovery taking place and also the amount of talented, high-caliber franchise investors entering the market.

It hit me one day as we sold a flower retail franchise to a former pharmaceutical executive. When the market was good for jobs, he would have probably laughed me off the phone offering him a flower business, but in 2010, he was investing in 9 locations of this particular franchise.

Today, during COVID, there are many of the same attributes in place and so many incredibly talented franchise investors are entering business ownership due to fewer opportunities in the employment market.

What is different about the COVID economy vs. the 2009 economy is the access to capital. In 2009, virtually no one could get a loan for anything as banks and lending institutions were licking their wounds from a horrendous collapse of the financial industry, and in COVID times, just about anyone can get a loan for anything.

Joking of course, but the general situation isn’t that far off as recently as last year, FMS had sold one multi-unit franchise to a group that purchased a $4 million investment, which included real estate, for a senior care franchise system and put $0 down on the entire deal.

A transaction that would have been about as believable in 2009 as meeting a group of aliens landing in your neighborhood some evening. One big change between the two markets is the SBA Funding element, the government is throwing money into the market in a variety of ways and one of those is supporting Small Business Loans through the SBA.

Most franchises, if they have the right mix of operator involvement and a few other characteristics can qualify for what is called the SBA Franchise Directory which is an approval for a franchise brand by the SBA which then makes the funding process quicker, easier and faster for a new franchise buyer if the brand is on this SBA Franchise Directory.

When FMS launches a brand, this is something we do for every new franchise. It’s not only important, but it’s also critical to being able to fund new franchise investments in a system.

SBA financing isn’t the only option for funding new franchise growth, there is a variety and all should be taken into account. Here would be my list to consider for offering funding to franchise buyers to your brand:

  1. SBA Loans: These loans are backed by the Small Business Administration and if the buyer qualifies, they will generally be the lowest interest rates and the best cost for the buyer to obtain funding.
  2. Commercial Bank Loans: Every franchise buyer has the option to just go to their local bank or lending institution. I would recommend developing a couple of solid relationships with lending groups to offer referrals and a direct option to a lending group with the buyers.
  3. Creative Lenders: There are other lending options for a buyer which come through different channels than banks and in some cases, these can be incredibly effective. These are basically private lending groups that in some cases have easier qualifications to close a loan but can be more costly to the franchisee in higher interest rates, etc.
  4. Family and Friends: The one I would always suggest that sometimes is overlooked or just not addressed is many times one of the best ways to help fund a franchise sale. Suggest to the buyer that they present the investment opportunity to their friends and connections.
    So many times this ends up being the best option for them and they have more resources at their fingertips than they realized this tends to be the easiest way to fund a deal in many cases
  5. Franchisor funding the deal: Last but not least would be the deals, the Franchisor would provide lending options, many times the easiest way to offer this is some sort of financing of the franchise fee which allows the franchisee to make payments on the fee over a specified time period. This needs to be disclosed in Item 10 of your FDD, but it can make a big difference in your ability to close some franchise sales.

Every franchise system needs to have lending figured out in order to successfully develop its network and franchise the business model. It isn’t a “nice to have”, it’s a “need to have” for any brand getting into the franchise market and selling its franchise platform.

For more information on franchise lending options or on how to franchise your business, contact us.

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