You’ve been lured by the relative safety of having a franchise flag flying over your business, but unfortunately, the lending shortfall in the franchise market is making it hard for you to even hang your flag much less fly it. In an interview with Steve Caldeira, president of the International Franchise Association (IFA), Entrepreneur.com reports an 18 percent shortfall in the franchise lending industry. This crunch has made opening a franchise hard for many eager investors, but franchisors are taking innovative measures to sidestep the issue.
Many franchisors have decided to step in and handle the issue themselves by lending their franchisees the cash that they need. Gold’s Gym opened a finance arm just to help franchisees, Massage Envy partnered with Franchise America Finance to offer loans to qualified franchisees, and Spring-Green Lawn Care agreed to apply $10,000 of its initial franchise fee toward start up costs.
Before filing mountains of paperwork with your local bank, speak directly with your franchisor. They may be able to loan you money, find you a 3rd party lender, reduce your franchise fees, or apply some of your fees to startup supplies. According to the Small Business Administration (SBA), nearly 75 percent of franchisors are offering some sort of financial assistance to their franchisees. If the franchisor with whom you are working is not willing to help, it may be time to pick a new parent company.
Starting a franchise is just like starting a mom-and-pop company in many ways, and if you decide to apply for conventional financing, you will feel the similarities as you haul your financial statements, tax returns, and business plans to your loan officer. The SBA reminds applicants that the franchise you choose matters in this scenario. Lenders are more likely to approve loans that are affiliated with strong franchises. If you are applying for a loan to open a franchise in which the loan officer has never heard of, your chances of getting approved will be lower than they would have been for a franchise with a positive track record of profits and cash flow.
Bumpy Road to Success
Once you have the funding, you simply need to implement the operational policies of your particular franchise, open the doors, and watch your business boom. Unfortunately, it may not be that easy. Mythical numbers claim that only 5 percent of franchises fail, but comprehensive small business research indicates that this number may be closer to 35 to 39 percent, according to Entrepreneur.com. This underscores how challenging the supposedly well paved franchise road may be for some owners.
As a business owner, you need to pay close attention to every bit of income and expenditure in your company. Business software that lets you do everything from accepting payments to organizing Federal and State Payroll tax can be critical for keeping you on track. However, with a franchise, you can’t simply pick and choose all of your expenses. If the franchisor demands that you need to have a particular type of lettuce or a certain number of employees on hand, you are responsible for adhering to those expectations.
Because of those limitations, it may be better to focus on intangible goals. Forbes reports that there are three attributes of any successful business–trustworthiness, consistency, and loyalty. If you work with a franchisor who is committed to those goals and you emulate them in your own facility, your will greatly increase your chances of success.