5 Questions to Ask About Franchise Financing

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5 Questions to Ask About Franchise Financing.

One of the biggest factors in restaurant ownership is that of funding. In fact, it’s one of the biggest factors in anything. Without the proper and necessary funds to put any type of venture into place – whether it be taking over a multi-million dollar chain or buying groceries – plans simply can’t move forward.

It’s a statement that might sound obvious enough, yet still causes so many to stall. Because they haven’t taken the necessary steps in order to obtain funding. Or, they’ve muddled through the process and the money won’t come together in time.

To avoid this nightmare of a situation, from any number of causes, consider these important questions. They serve as a surefire and ongoing way to keep your franchise funding in check.

5. What Can You Do to Streamline the Process?

Whether it be paperwork, following up with due dates, or whatever else the bank requires, find out what you can do to help them along. The same is true for anyone borrowing from the franchise company, or when its investors getting the project rolling. No matter where the money comes from, there’s an entire process to get from point A to point B. As well as to jump through the necessary hoops so that it’s usable. By staying ahead of any issues, however, you can work to ensure these unsightly flaws don’t slow down the funding process.

4. How Much Do You Need?

No really. How much? Ask the franchise company. Then ask local business owners. Then get a little more. Or a lot more if you’re inexperienced. No matter how well we plan, how many precautions we take, something is always bound to go wrong. Always. It’s better to have enough money to fund said issue, or to float the restaurant for a few months until it’s able to support itself. Bills also might come in staggered, or all at once – even if you are profitable, you might need a lump sum to tide you over.

And, say you are lucky enough to have everything pan out, you can put that extra cash back against your loan. Just as soon as additional funds are available for any surprise emergency.

3. What’s the Best Way to Borrow?

Everyone’s financial situation will be different. Meaning everyone might need to get their cash flow from a different entity. Ask around to see which venue might be the best for your percentage down, amount needed, and projected profits. Talk to your franchise company or query with other franchisees to see which methods they’ve found to be the most successful. Research is the only way to find out what’s practical, and why, for each individual.

Also, remember that interest rates are subject to change over time – purchasing a second (or third or fourth) location might also be more practical from a different type of funding.

2. How Can You Increase Your Chances?

New franchisees must prove they can turn a profit. Without the ability to first fund it, however, you can essentially land at a stand-still. Instead, talk to the bank about what types of paperwork or projections will better strengthen your chances for approval. Oftentimes, coming in with great credit and a solid down payment – as well as various charts for sales in the area – is more than enough. Lenders need to know a restaurant will bring in eaters, and if you can’t show them through experience, show them with facts.

1. How Does the Future Look?

If you’re considering borrowing for a second location – or even if you aren’t – find out what the future holds for your financial situation. Look at contracts, talk to lenders – do whatever it takes to ensure there are no surprises down the line. This way, no matter how your business might grow or adapt, you can rest assured that finances are taken care of through any possible outcome.

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By Jason Hightower | November 02, 2017 | Food Franchise Blog