Offering both the flexibility and independence of being a small business owner, plus the support and infrastructure of a larger corporation, a franchise can be the ideal opportunity for anyone interested in becoming an entrepreneur. However, while many articles will breeze through some of the positives and negatives of owning a franchise, few take the time to actually detail out thoughts and research behind the points they raise.
The goal of this is to help you see the positives of opening a small business through a franchisor. We’ll share some stories, statistics, and antidotes detailing why we think franchising is the right path for many inspiring entrepreneurs.
Here we go…the sixth of seven reasons why franchising may be the right path for you to open your business.
Franchising Can Help Financing Your Business
Unfortunately, banks are notoriously reluctant to lend to small businesses – according to a recent survey by On-Deck of over 10,000 business loan applicants in the U.S., 82% were denied financing by their bank. Loaning to small businesses, especially startups, is a risky proposition for banks which is why most make it so incredibly difficult. In addition, lending to larger corporations is just plain more profitable for most banks which is why they direct most of their attention to them.
The days of walking into a bank with your business plan to secure a loan to start your business are almost a thing of the past. The unfortunate truth for most business owners today is that securing financing is harder than it has ever been before. Banks have a strong bias towards lending to larger corporations and businesses with a proven track record and require less underwriting than those that are starting something completely fresh. While this isn’t altogether new, it has been magnified more and more since 2008 and 2009.
Opening most businesses require a significant capital investment. Most people do not have access to 100% of the funds that are needed to start their new endeavor. While there are many ways to finance a business, most new businesses utilize the Small Business Administration loan program. While this article won’t go into details about that program, it’s safe to say that most reputable franchisors have a detailed understanding of the SBA Programs and can help you navigate through them. In many cases, franchisors have SBA Brokers (similar to a mortgage broker) that will help you with the financing of your business.
As a former Certified Public Accountant, I have helped many businesses put together projected financial statements for the purposes of trying to get funding. The fact of the matter is, what banks are traditionally asking for to finance a business, most potential business owners are lost in trying to provide. Most business owners are passionate about the business they are getting ready to start and are very familiar with how to service their customers. In my history, however, I have not seen many owners that are familiar with how to provide the bank projected financial statements in the manner they are requesting them. While a franchisor is legally not allowed to put together your projected financial statements, they can aid in many ways.
Securing funding for your business is one of the most stressful and least fun processes the business owners will go through. That stress is compounded by the fact that the vast majority of potential start-up owners have never gone through the process before. While many people buy more than 1 house or car and are familiar with those lending processes, most will not start or buy more than one business. This leads to stress and intimidation for most because of the lack of knowledge surrounding the process. While going with a franchisor is not a sure thing to obtain funding, between their expertise and the history of their business, you are much more likely to be able to secure funding for your potential business.
What it Comes Down To
The decision is a very personal one. No matter which you route you decide, the business will ultimately be yours. Hopefully, this has given you a little more insight into the decision then you had before.
Below are links to each article in the entire series of 7 Reasons to Franchise.
- #1 The Franchisor is your Business “Partner”
- #2 Experience of a Franchisor Translates into Dollars
- #3 Most Franchisors Offer the Expertise of a Professional Business Team
- #4 Franchisors Aren’t Selling a Job, Their Selling You a Business
- #5 Franchising Offers Flexibility
- #6 Franchising Can Help Financing Your Business
- #7 Franchising and the Risk Equation – What is the right amount of risk?
If you are interested in discussing franchising or oppurtunities with Monkey Bizness, please reach out to us.