You’ve done your research, you’ve seen the opportunity, and now it’s time to get started.
There’s just one problem:
Most entrepreneurs don’t have $50,000 laying around. Thinking of ways to get that much money can make your head spin.
An easy solution would be to head to your bank and get a loan. But when your credit score is less than ideal, it’s not always so simple.
Here are ten things to consider when financing your franchise.
1. Know your Numbers
The first step in figuring out how to finance your franchise is to know where you stand currently.
What’s your credit score? Most financing plans require a credit score of at least 600. You can still get loans with lower scores, but you risk higher interest rates.
What’s your net worth? Take all your assets (house, current cash, cars, property, etc.) and subtract your current liabilities (bills, outstanding loans, money owed, etc.). That number is your net worth, or more simply, what you own versus what you owe. This number is vital for institutions to determine if they want to lend to you.
What’s your current liquidity ratio? This number is calculated by subtracting your expenses from your cash assets (saving account, checking account, money market funds, etc.). This gives you a good idea of how long you can continue to meet your expenses if your income suddenly evaporated. For example, if you have $10,000 in cash assets and pay $5,000 in monthly expenses, your liquidity ratio would be 2.0, meaning you could pay your expenses for two more months.
These numbers combined provide lenders information on how you manage your money. Lenders want to know that you can manage your money, pay back your debts, and live within your means. You’ll need to show stable income and a track record of keeping your numbers in the green.
2. Raise or Maintain Your Credit Score
Now you know your numbers. Depending on how good they are, the next thing to do is raise or maintain them.
The first and most important number you can manage is your credit score. The simplest way of raising your credit score is to decrease your debts.
- Make a list of your complete credit card debt and decide where to start.
- Pay off low-balance cards and get current on any delinquent payments. Once you’re current, stay current!
- Do not pay off debt with another credit card. Moving around your debt isn’t going to help.
- Once you pay off a credit card, don’t close it quite yet, but make sure you aren’t using it anymore. Cut that card up if you need to, but leave the account open. Closing accounts will not help your score in the short term.
- Set up payment reminders so you don’t miss a payment. Missed payments have a massive impact on your score.
- Keep using some of your credit cards, but remember to use them responsibly and within your means. Consistently paying back an open credit line is the best thing you can do to raise your score over time.
- Lastly, seek the council and services of a credit advisor if necessary. Credit advisors will help you consolidate your debt and manage interest rates. Be advised that these services cost money themselves, so be sure you have exhausted all other options before seeking a credit advisor.
- This statement should not be considered legal or financial advice. You should consult with your bank or other financial professionals to determine what may be best for your individual needs.
3. Develop a Business Plan
Now that you have your numbers ready and feel confident that you can prove your worth to lenders, it’s time to show them how you’ll pay them back and why they can trust you.
The best way is to develop a business plan. This should be an all-encompassing plan of how your business will run. It answers questions like:
- How much money will you need to get started?
- What will be your operating costs?
- What is your projected revenue for the first year? After five years?
- How will you get there?
Creating this plan can be tedious, but is arguably the most important thing you can do to promote business success. There are a myriad of resources available online to help you through that process. You can even purchase inexpensive software to help guide you, like Business Plan Pro.
4. Lean on Family and Friends
Bank loans are the obvious route for a needed influx of cash, but the most common source for business start-ups is actually family and friends. They know you best and will most likely require far less collateral and charge little to no interest. You’ve been borrowing money from them since your childhood, why not leverage them again?
Nevertheless, don’t put your relationships at risk! Be sure to draft a written contract with clear terms, and live up to your side of the bargain.
5. Explore Franchisor Financing
Many franchise systems work with third-party lenders to get you good rates. Some, including Signal 88 Security, even have in-house financing that decreases the approval time and red tape to cut through. Signal 88 does offer a few different programs depending on your situation, credit score, and available capital. However, you will still need a credit score over 620, enough liquid capital to cover start-up costs, or a financier or loan approval.
6. Find SBA Loans
Most Small Business Administration (SBA) loans aren’t meant for starting a business, but for existing startups that need more cash. Thus, the SBA requires the business to be operating for some time before granting a loan.
Established franchises, on the other hand, are treated differently. They’re seen as a safer investment because the agency considers the franchisor’s total network performance. This is a major advantage as you consider joining the network.
Depending on the state, you may be eligible for a SBA franchise loan. Visit https://www.sba.gov/funding-programs/loans to find out more.
7. Leverage Veterans Loans
If you are a veteran, you may be eligible for some unique loan options from Uncle Sam.
For example, the SBA requires no upfront costs on SBA loans under $350,000 for veterans.
Companies that offer veterans unique options are Military Economic Injury Loans, Streetshares, Veterans Business Fund, Hivers and Strivers, to name a few.
Check out this article for more detailed information: https://www.fundera.com/business-loans/guides/veteran-business-loans
8. Consider your 401k
Most people see retirement as the goal and outcome of their career.
But if you’ve read this far, you know it’s time for you to start signing the checks, not just saving them.
Some Signal 88 franchise owners have chosen, as a last resort, to transfer their 401K accounts into stock of their own to fund their franchise.
If you really want your 401k savings, you can usually get them…after all, it is your money. In most cases, however, there will be some hoops to jump through and you could end up losing some of the money you saved through early withdrawal fees and tax deductions.
There are different ways to go about this which result in different charges. Please contact your IRA holder or bank for more information.
9. Don’t go all in
Make sure you have sufficient savings or income to support you through the startup process.
There are often unexpected costs like fuel, travel for training, vehicle maintenance, etc. If you don’t have any wiggle room in your budget, those costs could sink your business from the start and put a serious damper on your livelihood.
Experts say you should have enough cash on hand to get you through three months of expenses.
Go all-in mentally, not monetarily.
10. Don’t get discouraged!
The final and most important tip is to stay strong. Don’t be discouraged if you get turned down by lenders or are struggling to find the capital. Keep looking and keep the fire lit.
Many successful Signal 88 owners had to grind at the beginning of their journey.
Starting your franchise is only the beginning of the hard work, so if you’re ready to quit before even getting started, this may not be the struggle for you.
If you can persevere, the money will come, the business will grow, and success will follow.
*This information provided by Signal 88 Security is for informational purposes only. It should not be considered legal or financial advice. You should consult with your bank. Attorney, or other professionals to determine what may be best for your individual needs. Signal 88 Security does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial adviser and conducting his or her own research and due diligence. To the maximum extent permitted by law, Signal 88 Security disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.