Thinking of buying a new franchise? Here are 5 questions to ask the prospective franchisor in order to determine if they will support you with financing.
1. How do you help me build my financing request?
The first challenge youâ€™ll face in seeking a business loan is to prepare a bank-ready package. Banks want to work with serious borrowers and nothing shows you are serious like having all the documents a banker needs to see to move forward. Furthermore, banks look for very specific information to understand if your business is a fit for their very specific lending criteria. The best franchisors recognize that many of their current and future franchisees would benefit from assistance when seeking a business loan and therefore, they step up to support them. Due to some of the FTC regulations, franchisors canâ€™t be too involved, so instead top franchisors use best-of-breed third party tools like BoeFly.com to enable franchisees to efficiently build a bank-ready package.
2. How do you get me in front of the right lenders that are a match for my financing needs?
The single most important thing you can do as a borrower to successfully obtain financing with the best possible terms is to get your requests in front of a wide group of lenders that are interested in your loan request. The idea of you going from bank, to bank, to bank, to get lenders to compete for your business is inefficient and ineffective â€“ you donâ€™t have the time or resources to do it. Which begs the question: What can your franchisor do to help with getting you in front of the right lenders? Top franchisors invest in platforms that match your financing request with a wide array of lenders. Less proactive franchisors may provide their current and prospective franchisees with a list of lenders they may have come across through the years. The challenge with a list is that it isnâ€™t dynamic, it is rarely updated to reflect changes with lenders, and it doesnâ€™t take you as the borrower into consideration.
3. Do you make information available to a banker about the brand?
Banksâ€™ number one priority is to understand how the loan will perform. This is why it is so important that you articulate your financing needs with a bank-ready financing request. Many banks, particularly some of the largest banks, require an understanding of the franchise system, too. For these lenders, itâ€™s important to make sure that your franchisor makes the required information on their franchise system available to lenders. The challenge for the franchisor is accomplishing this goal while remaining compliant with FTC regulations. Leading franchisors use secure third-party technology platforms so that banks seeking information have it when they need it most â€“ when they are evaluating your loan request.
4. When I have a question on how to present my financing request, do you answer them? Or do you have a resource for me to use?
When a business owner starts down the road of getting financing, inevitably questions will pop up. Questions like, â€œWhat does my banker mean when they say Debt Service Coverage Ratio or Loan To Value (LTV)?â€ Franchisors that support their franchisees with financing are standing ready to address these questions. But more often, top franchisors are turning to third-party providers and itâ€™s easy to see why. The complicated nature of the small-business finance market requires a level of expertise that most franchisors donâ€™t have â€“ instead, they leverage best-of-breed providers.
5. What about after opening? Do you provide me with financing support after opening, perhaps with remodels, or upgrades?
Business ownersâ€™ capital needs certainly donâ€™t end after the grand opening. Instead, franchise owners will need capital to remodel, upgrade equipment, and even more exciting â€“ to expand. Make sure to select a franchise system that supports you with financing both today and tomorrow.
About Mike Rozman
Mike Rozman is co-president and chief strategy officer of BoeFly, LLC. Rozman oversees business development, marketing, and external affairs. He drives best practice information in the credit industry overseeing BoeFlyâ€™s educational programs and outreach, and is a frequent speaker at conferences and events focused on small business lending, franchise finance and secondary markets.